A  NATIONAL  SYSTEM 
OF  ECONOMICS 

J.TAYLOR  PEDDIE 


A  NATIONAL 
SYSTEM  OF   ECONOMICS 


HODDER  AND  STOUGHTON 

PUBLISHERS  TO 

THE  UNIVERSITY  OF  LONDON  PRESS 


A    NATIONAL 
SYSTEM  OF  ECONOMICS 

WITH  A  CONSIDERATION  OF  THE 

PARIS    ECONOMIC    RESOLUTIONS 

AND    OF    THEIR    INFLUENCE     ON 

NATIONALITY 


BY 


J.  TAYLOR   PEDDIE,   F.S.S. 

AUTHOR  OF 

"FIRST  PRINCIPLES  OF  PRODUCTION," 
"ON  THE  RELATION  OF  IMPORTS  TO  EXPORTS" 


NEW   YORK 
E.   P.   DUTTON   &   CO. 

681   FIFTH    AVENUE 


n 


DEDICATED 

TO   MY   FRIEND 

SIR   HERBERT   H.  BARTLETT,  BART. 


PREFACE 

IN  the  development  of  this  work,  being  my  third 
volume  on  National  Economics,  I  have  returned 
to  the  main  theme  indicated  in  the  first  Essay  of 
my  book  on  First  Principles  of  Production.  I 
have  also  found  it  desirable  to  reintroduce  some 
of  the  definitions  given  in  the  first  and  second 
volumes,  notably  those  on  raw  materials  and 
free  trade,  as  I  believe  that  until  these  definitions 
are  more  fully  appreciated  and  impressed  on  the 
public  mind  the  study  of  national  economic  ques- 
tions will  prove  to  be  what  Lord  Sydenham  chose 
to  call  "  a  dismal  science." 

As  a  result  of  further  thought  and  study  I  have 
been  able  to  give  a  clearer  and  more  precise  defini- 
tion of  raw  materials,  which  I  hope  may  prove 
helpful  in  the  development  of  our  national  business 
policy. 

Although  the  Paris  Economic  Resolutions  have 
been  accepted  and  approved  in  principle  by  all  the 
Allied  Powers,  yet  very  little,  if  any,  progress  has 
been  made  towards  making  them  really  effective. 
The  public,  business  men,  politicians,  and  even 
the  ministers  are,  like  Micawber,  waiting  for  some- 
thing to  turn  up;  but  this  attitude  may  be  more 
apparent  than  real.  I  am  convinced,  however,  that 

v 

380521 


vi  PREFACE 

the  delays  that  have  occurred  can  be  attributed  to 
the  mentality  of  certain  of  the  Government  Depart- 
ments whose  well-known  prejudices  in  favour  of 
Laissez  faire,  Laissez  passer  are  notorious;  and  for 
this  reason  I  cannot  help  but  agree  with  Sir  Edward 
Carson's  suggestion  that  some  form  of  organisation 
is  necessary  whereby  the  Government  may  apply  for 
and  secure  a  mandate  from  the  country  as  to  the 
measures  to  be  employed  in  developing  and  making 
effective  the  Paris  Economic  Resolutions. 

The  establishment  of  Trade  and  National  Com- 
mittees by  the  Board  of  Trade  is  all  to  the  good; 
but  I  have  always  maintained,  and  I  do  so  still, 
that  the  work  and  conclusion  of  these  committees 
must  in  the  end  prove  to  be  abortive,  or  consider- 
ably stultified,  unless  there  is  secured,  as  the  basis 
of  their  deliberations  and  our  national  business 
policy,  a  national  system  of  economics. 

The  decisions  of  these  Trade  Committees  will, 
in  the  end,  no  doubt,  prove  to  be  extremely  useful 
to  the  Board  of  Trade;  but  I  trust  it  will  not  be 
considered  unjust  of  me  to  assume  that  their  final 
conclusions  might,  had  they  a  definite  national 
economic  system  to  guide  them  in  the  course  of 
their  discussions,  all  have  been  co-ordinated  and 
developed  with  more  certainty  in  favour  of  our 
national  and  imperial  interests;  and  consistent  with 
every  consideration  that  ought  to  be  shown  to  our 
loyal  Allies. 

But  so  long  as  we  have  Ministers  in  control  of 
the  essential  Public  Departments  whose  pre-war 
views  were  essentially  Laissez  faire,  Laissez  passery 


PREFACE 


vn 


and  who  have  as  yet  given  no  indication  of  having 
definitely  abandoned  that  policy,  a  want  of  con- 
fidence and  progress  must  continue  to  prevail  in 
so  far  as  it  concerns  our  future  national  business 
policy. 

What  is  needed  most  at  the  moment  is  a  cour- 
ageous and  illuminative  policy,  the  development 
of  which  should  be  conducted  with  energy  and 
vigour  by  the  Ministers  concerned;  and  the 
country  must  see  to  it  that  they  seek  and  are 
provided  with  the  necessary  mandate.  It  is  all 
very  well  to  assert  that  in  consequence  of  the  war 
we  should  not  invite  Ministers  to  do  this,  but  we 
have  to  bear  in  mind  that  we  occupy  a  peculiar 
position  inasmuch  as  we  alone  of  all  the  nations 
have  two  definite  economic  schools  of  thought; 
and  that  the  Government  Departments  most  con- 
cerned with  the  development  of  our  future  trade 
policy  are  controlled  by  Ministers  whose  minds 
are  saturated  with  Laissez  faire,  Laissez  passer.  In 
these  circumstances  I  consider  that  the  public 
should  be  invited  at  the  earliest  possible  moment 
to  decide  whether  this  silent  but  passive  opposition 
should  be  allowed  to  continue. 

Let  us  remember  what  Bernhardi  stated — I 
make  no  apology  for  submitting  a  quotation  from 
him,  as  it  would  be  to  our  advantage  if  certain  of 
our  Ministers  only  imbibed  some  of  the  spirit 
which  he  indicates  in  the  prosecution  of  the  war 
and  more  particularly  in  the  development  of  our 
future  trade  policy — namely  :  "  that  great  Minis- 
ters were  not  those  who  balanced  the  national 


viii  PREFACE 

accounts  by  sparing  the  national  forces  while  re- 
nouncing the  politically  indispensable  outlay,  but 
he  who  stimulates  all  the  live  forces  of  the  nation 
to  cheerful  activity,  and  so  employs  them  for 
national  ends  that  the  State  revenue  suffices  to 
meet  the  admitted  political  demands.  He  can 
only  attain  this  purpose  if  he  works  in  harmony 
with  the  Ministers  for  Commerce,  Agriculture, 
Industries,  and  Colonies,  in  order  to  break  down 
the  restrictions  which  cramp  the  enterprise  and 
energy  of  the  individual,  to  make  all  dead  values 
remunerative,  and  to  create  favourable  conditions 
for  profitable  business.  A  great  impulse  must 
thrill  the  whole  productive  and  financial  circles  of 
the  State,  if  the  duties  of  the  present  and  the 
future  are  to  be  fulfilled." 

I  have  considered  it  desirable  in  developing  the 
main  theme  of  this  work  to  use  quotations  from 
the  works  of  distinguished  economists;  I  make  no 
apology  for  so  doing,  inasmuch  as,  apart  from  the 
justice  and  equity  rendered  in  the  acknowledg- 
ments, they  lend  more  authority  to  the  principles 
involved  and  enunciated. 

I  am  glad  to  be  able  to  acknowledge  that  with 
the  recommendation  of  Lord  Faringdon's  Com- 
mittee in  favour  of  the  establishment  of  a  Trade 
Bank,  with  a  view  to  extending  financial  facilities 
for  the  development  of  national  industries,  all  of 
the  detailed  reforms  advocated  in  my  first  two 
volumes  have  been  made  effective,  or  have  received 
official  recognition.  The  main  issue,  however,  is 
not  yet  determined,  namely,  the  establishment  of 


PREFACE  ix 

a  national  economic  system  as  the  basis  of  our 
national  business  policy;  and,  as  a  corollary  to 
this,  the  establishment  of  a  Ministry  of  Industry 
and  Commerce  to  develop  the  new  system  in 
favour  of  our  national  and  imperial  industries. 

If  I  were  asked  if  the  country  had  made  any 
progress  in  matters  economic  since  war  was  de- 
clared in  1914,  I  would  say  that  it  has  made  great 
progress.  The  spirit  which  dominates  organised 
labour  and  our  business  men  to-day  is  entirely 
different  to  that  which  prevailed  in  pre-war  times, 
and  it  affords  great  encouragement  for  the  future. 
In  fact,  in  so  far  as  it  concerns  this  particular  aspect 
of  the  question,  if  the  further  reforms  herein  advo- 
cated were  made  effective  we  could  truthfully 
assert  that  Germany  had  lost  the  war,  since  we 
could  claim  that  our  country  had  been  regenerated; 
and  that  if  the  war  were  to  afterwards  terminate 
we  should  have  nothing  to  fear  from  Germany  in 
future. 

It  leads  me  to  hope,  therefore,  that  this  work 
may  receive  the  same  due  consideration  as  hitherto; 
and  in  concluding  these  few  remarks  I  would  just 
like  to  remind  my  readers  that  Napoleon,  in  the 
many  moments  he  had  for  meditation  during  his 
exile  at  St.  Helena,  expressed  the  view  that  what 
Europe  suffered  from  most  was  the  want  of  (a)  a 
common  law;  (fr)  a  common  measure;  and  (c)  a 
common  monetary  system.  Unity  and  co-opera- 
tion is  here  contemplated  and  suggested,  and  as  a 
basis  of  an  Imperial  trade  policy,  nothing,  in  my 
opinion,  could  be  more  useful;  but  before  this 


x  PREFACE 

great  reform  can  be  achieved  we  must  first  of  all 
begin  to  organise  on  National  lines,  subsequently 
on  Imperial  lines,  and  ultimately  on  International 
lines;  after  which  we  might  begin  to  contemplate 
another  principle  and  add  it  to  those  suggested  by 
Napoleon :  namely,  that  what  the  British  Empire 
and  Europe  suffered  from  most  was  the  want  of 
(d)  a  common  economic  system.  If  this  could  be 
achieved  it  would,  I  believe,  more  than  anything 
else  secure  and  ensure  a  lasting  peace  to  Continental 
Europe  and  the  world  in  general. 

J.  TAYLOR  PEDDIE. 
London,  October  3,  1916. 


POSTSCRIPT 

SINCE  the  foregoing  was  written  several  events 
of  considerable  importance  have  occurred  to  which 
reference  must  be  made,  namely— 

(1)  There  has  been  a  change  of  Government, 
and  the  constitution  of  the  new  Government,  and 
the  announcement  of  its  policy,  encourage  us  to 
hope  that  the  new  Ministers  may  conduct  their 
respective  offices  with  more  energy  and  vitality  in 
the  national  interests  than  we  have  been  accus- 
tomed   to    experience    hitherto.       For    obvious 
reasons,  however,  the  Author  has,  notwithstanding, 
decided  to  publish  the  manuscript  as  it  stands, 
without  alteration. 

(2)  In  the  Preface  to  his  last  book  the  Author 
stated   that   "  the  greatest  exponent  of  National 


PREFACE  xi 

Economics  in  the  modern  sense  was  Adam  Smith 
himself."  After  completing  the  present  work  a 
friend  referred  him  to  an  American  translation  of 
Frederick  List's  National  System  of  Political  Eco- 
nomy. So  remarkable  is  this  work  that  the  state- 
ment above  referred  to  must  be  modified;  in  the 
strict  sense  List  is  by  far  the  greatest  exponent  of 
the  system;  but  Smith,  nevertheless,  will  always 
remain  the  father  of  it. 

(3)  In  glancing  through  the  books  of  a  second- 
hand book-shop  the  Author  came  across  two  copies 
(Tenth  Edition)  of  Adam  Smith's  Theory  of  Moral 
Sentiments,  in  which  there  is  a  preface  written  by 
Smith  after  he  had  completed  the  Wealth  of 
"Nations;  it  cannot  be  generally  known,  but  it  con- 
firms the  general  conclusions  the  Author  had  formed 
for  himself,  that  Smith's  Wealth  of  Nations  was 
intended  to  constitute  the  basis  of  a  national 
system. 

In  the  circumstances  the  Author  has  deemed 
it  to  be  necessary  to  add  a  further  chapter  to 
the  present  work,  "  On  the  Relative  Systems  of 
Political  Economy  and  National  Economics,"  in 
which  opportunity  is  taken  of  discussing  List's 
national  system  in  relation  to  Smith's,  and  their 
influence  on  the  present  situation.  Smith's  preface 
to  his  Theory  of  Moral  Sentiments  is  also  pub- 
lished therein  for  general  information. 

Needless  to  say,  the  Author  has  not  been  in  any 
way  indebted  to  List  for  any  views  he  has  expressed 
on  his  own  system  of  National  Economics,  not 
having  had  an  opportunity  of  reading  List's  work 


xii  PREFACE 

until  he  secured  the  copy  of  the  American  trans- 
lation above  mentioned.  But  the  extraordinary 
resemblance  of  ideas  naturally  affords  him  consider- 
able gratification,  since,  for  the  first  time,  he  feels 
that  his  own  system  rests  upon  a  sure  and  solid 
foundation.  The  resemblance  of  views  may  be 
attributed  to  the  fact  that  List  had  a  thorough 
first-hand  knowledge  of  commercial  practice, 
having  successfully  engaged  in  railway  enterprise 
in  America  before  finally  settling  down  in 
Germany. 

So  practical  an  economist  was  List  that  he 
actually  formed  an  association  of  merchants  and 
manufacturers  shortly  after  his  appointment  to  the 
Chair  of  Political  Economy,  in  the  University  of 
Tubingen  in  1817,  to  suppress  the  Customs  on  the 
interior  boundary  of  the  German  States;  and  also 
to  attain  for  Germany  the  same  industrial  and 
commercial  development  which  other  nations  had 
obtained  by  their  commercial  policy. 

If  the  Author's  system  can  attain  for  Great 
Britain  what  List's  has  attained  for  Germany  he 
will  be  more  than  repaid  for  the  many  months  of 
labour  it  has  involved. 

December  25,  1916. 


CONTENTS 

PREFACE       .       .       .       .       . . v   .       7      .       • 

THE   PARIS  ECONOMIC  RESOLUTIONS   (TRANSLA- 
TION)     .      ..  .       ..,'.  •  .''-«..     .       . 

CHART  OF  A  NATIONAL  SYSTEM  OF  ECONOMICS 

BASED  ON  FREEDOM  OF  TRADE      .      .    .,.._•     2 

CHAPTER  I 

THE  CONSIDERATIONS  WHICH  ARISE  OUT  OF  THE 

PARIS  ECONOMIC  RESOLUTIONS       ^      „       .  3-34 

DEFINITION  OF  RAW  MATERIALS  .  '  '\  '  .  "  '  .  8 
WHAT  IS  FREE  TRADE?  ITS  DERIVATION  '.  '  '.  12 
THE  THEORY  OF  AMERICAN  PROTECTION  *  .  1 6 

ADAM  SMITH'S  NATIONAL  ECONOMY  BASED  ON 
FREEDOM  OF  TRADE  «,   £$.      ^      ...      27 

CHAPTER  II 

ON  THE  CONDITIONS  REQUIRED  TO  MAKE  THE 

PARIS  ECONOMIC  RESOLUTIONS  EFFECTIVE    35-58 

ON  ENEMY  ALIEN  TRADE  AFTER  THE  WAR  .  4° 
ON  ALLIED  TRADE;  AND  THE  NECESSITY  OF 

CO-ORDINATING  TARIFF   SCHEDULES  ,.         .          45 

ON    NEUTRAL  TRADE      ''   .         »      .  ^         ,        ->      .    .         52 
xiii 


xiv  CONTENTS 

CHAPTER  III 

PAGB 

THE  INFLATION  AND  MANIPULATION  OF  PRICES 

AND  THE  CAUSE  .      .      .      .      .      .        59-76 

Will   London  be  a  Free  Market  for  Gold  after  the 
War?       .        .       ,.  ;•'•>.        T  ,  y  v     ..        .        .        61 

Mr.  F.  A.  Vanderlip  on  the  American  Gold  position 
after  the  War  .         .         ...        .        .  73 

CHAPTER  IV 

ON  THE  CO-OPERATION  OF  LABOUR  IN  PRODUC- 
TION AND  POLITICS     .  '   .       ,       .       .       77-111 

A  QUESTION  OF  MORAL  SENTIMENT  ...  82 
ORGANISED  LABOUR  AND  THE  MARXIAN  THEORIES  QO 

On  Confidence  and  Credit 94 

Mr.  Horace  White  on  the  Subject     , .                 i         .  95 

Mr.  Otto  H.  Kuhn  on  the  same  Subject      .        .  97 

Marx  on  the  Circulation  of  Money      .                 *        ,  102 

Marx  on  Labour  Power  as  a  Commodity    .        .        .  106 

CHAPTER   V 

MODERN  MACHINERY  AND   THE   MARXIAN  THE- 
ORIES          112-131 

On  Constant  and  Variable  Capital      .         .         .         .114 

CHAPTER  VI 
THE  SOLUTION  OF  THE  LABOUR  PROBLEM    .     132-175 

Marx  on  the  Value  of  Labour-power  .  - .  .  .  132 
The  Minimum  Wage  the  only  Solution  .  .  .  135 
ON  THE  WORKING  DAY  .  .  .  .  .  .  138 


CONTENTS  xv 

PACK 

ON   SURPLUS  VALUES         ...  .         .       144 

Mr.  Samuel  Gompers  on  the  Subject  .         .         .         .145 

Mr.  Samel  Gompers  on  Wage  Earnings  in  England  as 
compared  with  America 149 

THE  THEORY  OF  AMERICAN  PROTECTION  FROM 
THE  POINT  OF  VIEW  OF  AMERICAN  OR- 
GANISED LABOUR 152 

Senator  Thomas  B.  Reed  and  Mr.  Moreton  Frewen 
on  the  Subject          »  • 153 

On  Freedom  :  Individual  and  Collective     .         .        .162 
On  the  Company  Promoter 168 

ON  THE  DISTRIBUTION    OF  WEALTH   THROUGH 

HIGH  WAGES;  AND  WHAT  IT  MEANS  .       .     169 

CHAPTER  VII 

ON     AGRICULTURE     AND    ITS     INFLUENCE    ON 

LABOUR     .       .      .    .  »   -  .       .       .      176-218 

Method  and  Organisation  are  just  as   important   in 
Agriculture  as  in  Industry        .         .         »        .         .       183 

Mr.  Moreton  Frewen  on  the  Economics  of  James  J. 

Hill          ,        .        .         .         ..        ....      183 

The  Development  of  German  Agriculture  .         .         .186 
Mr.  T.  B.  Middleton  on  the  Subject    .         .         .         .189 

Successful  Development  of  Agriculture,  particularly  in 

Ireland,  necessary  to  create  a  large  Home  Market  .      194 

Prince  Von  Billow  on  the  Subject        .         .         .         .197 

Is  a  General  Protective  Tariff  for  British  Agriculture 

necessary  ? — a  suggestion 199 

Mr.  Christopher  Tumor  on  Small  Holdings         .         .      203 

Count  von  Schwerin-Lowitz  on  the  Recent   Develop- 
ment of  German  Agriculture 212 


xvi  CONTENTS 

CHAPTER  VIII 

PACE 

ON  THE  GENERAL  THEORY  OF  TRANSPORTATION  219-233 
Mr.  A.  W.  Gattie  on  the  Terminal  System.        ,        .      227 

CHAPTER  IX 

ON    THE     RELATIVE     SYSTEMS    OF    POLITICAL 

ECONOMY  AND  NATIONAL  ECONOMICS    .     234-295 

Was  Frederick  List  correct  in  assuming  Adam  Smith 
an  Absolute  Free  Trader  ?       .         .        ...      235 

Francis  Homer  on  Smith's  System  .  V  .  .  241 
Adam  Smith  on  his  own  System  .  .  .  .  244 

The  Difference  between  our  own  System  and  List's 
System    .        .        .  2461 

Individuals  cannot  live  unto  themselves  :   Frederick 
List  on  the  Subject . 248 

ON  THE  NATURE  OF  POLITICAL  ECONOMY  .  .251 
John  Stuart  Mill  on  the  Subject  .  .  .  .  .  253 
Stephen  Colwell  on  the  same  Subject .  .  „  .  257 

DEFINITION  OF  NATIONAL  ECONOMICS  .  .  .263 
Stephen  Colwell  on  the  Subject  .  .  .  .  ,  268 

Germany  owes  her  present  power  to  List's  National 
System '     .        .  .      275 

Absolute  Free  Trade  can  never  be  established  between 
Nations .      287 

The  Primary  Objects  we  must  attain  to  pave  the  way 
for  a  National  System      ...  .        .      291 

INDEX 296 

1  Continued  from  p.  263. 


RECOMMENDATIONS  OF  THE  ECONOMIC  CONFER- 
ENCE OF  THE  ALLIES  HELD  AT  PARIS  ON 
JUNE  14,  15,  1 6  AND  17,  1916. 

(Translation) 

I 

THE  representatives  of  the  Allied  Governments 
have  met  at  Paris  under  the  presidency  of  M.  Cle- 
mentel,  Minister  of  Commerce,  on  June  14,  15, 
1 6  and  17,  1916,  for  the  purpose  of  fulfilling  the 
mandate  given  to  them  by  the  Paris  Conference 
of  March  28,  1916,  of  giving  practical  expressions 
to  their  solidarity  of  views  and  interests,  and  of 
proposing  to  their  respective  Governments  the 
appropriate  measures  for  realising  this  solidarity. 

II 

They  declare  that  after  forcing  upon  them  the 
military  contest  in  spite  of  all  their  efforts  to  avoid 
the  conflict,  the  Empires  of  Central  Europe  are 
to-day  preparing,  in  concert  with  their  Allies,  for 
a  contest  on  the  economic  plane,  which  will  not 
only  survive  the  re-establishment  of  peace,  but  will 
at  that  moment  attain  its  full  scope  and  intensity. 

Ill 

They  cannot  therefore  conceal  from  themselves 
that  the  agreements  which  are  being  prepared  for 


xviii  RECOMMENDATIONS 

this  purpose  between  their  enemies  have  the 
obvious  object  of  establishing  the  dominion  of 
the  latter  over  the  production  and  the  markets  of 
the  whole  world  and  of  imposing  on  other  countries 
an  intolerable  yoke. 

In  face  of  so  grave  a  peril  the  Representatives 
of  the  Allied  Governments  consider  that  it  has 
become  their  duty,  on  grounds  of  necessary  and 
legitimate  defence,  to  adopt  and  realise  from  now 
onward  all  the  measures  requisite  on  the  one  hand 
to  secure  for  themselves  and  for  the  whole  of  the 
markets  of  neutral  countries  full  economic  inde- 
pendence and  respect  for  sound  commercial  prac- 
tice, and  on  the  other  hand  to  facilitate  the  organ- 
isation on  a  permanent  basis  of  their  economic 
alliance. 

For  this  purpose  the  Representatives  of  the 
Allied  Governments  have  decided  to  submit  for 
the  approval  of  those  Governments  the  following 
resolutions — 

A 

MEASURES  FOR  THE  WAR  PERIOD 

I 

The  laws  and  regulations  prohibiting  trading 
with  the  enemy  shall  be  brought  into  accord. 
For  this  purpose — 

A. — The  Allies  will  prohibit  their  own  sub- 
jects and  citizens  and  all  persons  residing 
in  their  territories  from  carrying  on  any 
trade  with — 


RECOMMENDATIONS  xix 

1.  The    inhabitants    of    enemy    countries 

whatever  their  nationality. 

2.  Enemy  subjects  wherever  resident. 

3.  Persons,    firms    and    companies    whose 

business  is  controlled  wholly  or  par- 
tially by  enemy  subjects  or  is  subject 
to  enemy  influence  and  whose  names 
are  included  in  a  special  list. 

B. — They  will  prohibit  the  importation  into 
their  territories  of  all  goods  originating 
in  or  coming  from  enemy  countries. 

C. — They  will  devise  means  of  establishing  a 
system  enabling  contracts  entered  into 
with  enemy  subjects  and  injurious  to 
national  interests  to  be  cancelled  uncon- 
ditionally. 

II 

Business  undertakings  owned  or  operated  by 
enemy  subjects  in  the  territories  of  the  Allies  will 
all  be  sequestrated  or  placed  under  control; 
measures  will  be  taken  for  the  purpose  of  winding 
up  some  of  these  undertakings  and  of  realising 
their  assets,  the  proceeds  of  such  realisation  remain- 
ing sequestrated  or  under  control. 

Ill 

In  addition  to  the  export  prohibitions  which  are 
necessitated  by  the  internal  situation  of  each  of  the 
Allied  countries,  the  Allies  will  complete  the 
measures  already  taken  for  the  restriction  of  enemy 


xx  RECOMMENDATIONS 

supplies,  both  in  the  mother  countries  and  in  the 
Dominions,  Colonies  and  Protectorates — 

1.  By  unifying  the  lists  of  contraband  and  of 

export  prohibition,  and  particularly  by  pro- 
hibiting the  export  of  all  commodities 
declared  absolute  or  conditional  contraband; 

2.  By  making  the  grant  of  licenses  for  export 

to  neutral  countries  from  which  export  to 
enemy  territories  might  take  place  condi- 
tional upon  the  existence  in  such  countries 
of  control  organisations  approved  by  the 
Allies;  or,  in  the  absence  of  such  organisa- 
tions, upon  special  guarantees  such  as  the 
limitation  of  the  quantities  exported,  super- 
vision by  Allied  consular  officers,  etc. 

B 

TRANSITORY  MEASURES  FOR  THE  PERIOD  OF 
COMMERCIAL,  INDUSTRIAL,  AGRICULTURAL 
AND  MARITIME  RECONSTRUCTION  OF  THE 
ALLIED  COUNTRIES. 

I 

The  Allies  declare  their  common  determination 
to  ensure  the  re-establishment  of  the  countries 
suffering  from  acts  of  destruction,  spoliation  and 
unjust  requisition,  and  decide  to  join  in  devising 
means  to  secure  the  restoration  to  those  countries, 
as  a  prior  claim,  of  their  raw  materials,  industrial 
and  agricultural  plant,  stock  and  mercantile  fleet, 
or  to  assist  them  to  re-equip  themselves  in  these 
respects. 


RECOMMENDATIONS  xxi 

II 

Whereas  the  war  has  put  an  end  to  all  the 
treaties  of  commerce  between  the  Allies  and  the 
Enemy  Powers,  and  whereas  it  is  of  essential  im- 
portance that,  during  the  period  of  economic  recon- 
struction which  will  follow  the  cessation  of  hostili- 
ties, the  liberty  of  none  of  the  Allies  should  be 
hampered  by  any  claim  put  forward  by  the  Enemy 
Powers  to  most-favoured-nation  treatment,  the 
Allies  agree  that  the  benefit  of  this  treatment  shall 
not  be  granted  to  those  Powers  during  a  number 
of  years  to  be  fixed  by  mutual  agreement  among 
themselves. 

During  this  number  of  years  the  Allies  under- 
take to  assure  to  each  other  so  far  as  possible  com- 
pensatory outlets  for  trade  in  case  consequences 
detrimental  to  their  commerce  result  from  the 
application  of  the  undertaking  referred  to  in  the 
preceding  paragraph. 

Ill 

The  Allies  declare  themselves  agreed  to  con- 
serve for  the  Allied  countries,  before  all  others, 
their  natural  resources  during  the  whole  period 
of  commercial,  industrial,  agricultural  and  mari- 
time reconstruction,  and  for  this  purpose  they 
undertake  to  establish  special  arrangements  to 
facilitate  the  interchange  of  these  resources. 

IV 

In  order  to  defend  their  commerce,  their  in- 
dustry, their  agriculture  and  their  navigation 


xxii  RECOMMENDATIONS 

against  economic  aggression  resulting  from  dump- 
ing or  any  other  mode  of  unfair  competition,  the 
Allies  decide  to  fix  by  agreement  a  period  of  time 
during  which  the  commerce  of  the  enemy  powers 
shall  be  submitted  to  special  treatment  and  the 
goods  originating  in  their  countries  shall  be  sub- 
jected either  to  prohibitions  or  to  a  special  regime 
of  an  effective  character. 

The  Allies  will  determine  by  agreement  through 
diplomatic  channels  the  special  conditions  to  be 
imposed  during  the  above-mentioned  period  on 
the  ships  of  the  enemy  powers. 

V 

The  Allies  will  devise  the  measures  to  be  taken 
jointly  or  severally  for  preventing  enemy  subjects 
from  exercising,  in  their  territories,  certain  indus- 
tries or  professions  which  concern  national  defence 
or  economic  independence. 


PERMANENT  MEASURES  OF  MUTUAL  ASSISTANCE 
AND  COLLABORATION  AMONG  THE  ALLIES 

I 

The  Allies  decide  to  take  the  necessary  steps 
without  delay  to  render  themselves  independent 
of  the  enemy  countries  in  so  far  as  regards  the  raw 
materials  and  manufactured  articles  essential  to  the 
normal  development  of  their  economic  activities. 

These  steps  should  be  directed  to  assuring  the 


RECOMMENDATIONS  xxiii 

independence  of  the  Allies  not  only  so  far  as 
concerns  their  sources  of  supply,  but  also  as 
regards  their  financial,  commercial  and  maritime 
organisation. 

The  Allies  will  adopt  the  methods  which  seem 
to  them  most  suitable  for  the  carrying  out  of  this 
resolution,  according  to  the  nature  of  the  com- 
modities and  having  regard  to  the  principles  which 
govern  their  economic  policy. 

They  may,  for  example,  have  recourse  either  to 
enterprises  subsidised,  directed  or  controlled  by 
the  Governments  themselves,  or  to  the  grant 
of  financial  assistance  for  the  encouragement  of 
scientific  and  technical  research  and  the  develop- 
ment of  national  industries  and  resources;  to 
customs  duties  or  prohibitions  of  a  temporary  or 
permanent  character;  or  to  a  combination  of  these 
different  methods. 

Whatever  may  be  the  methods  adopted,  the 
object  aimed  at  by  the  Allies  is  to  increase  pro- 
duction within  their  territories  as  a  whole  to  a 
sufficient  extent  to  enable  them  to  maintain  and 
develop  their  economic  position  and  independence 
in  relation  to  enemy  countries. 

II 

In  order  to  permit  the  interchange  of  their  pro- 
ducts, the  Allies  undertake  to  adopt  measures  for 
facilitating  their  mutual  trade  relations  both  by  the 
establishment  of  direct  and  rapid  land  and  sea 
transport  services  at  low  rates,  and  by  the  exten- 
sion and  improvement  of  postal,  telegraphic  and 
other  communications. 


xxiv  RECOMMENDATIONS 

III 

The  Allies  undertake  to  convene  a  meeting  of 
technical  delegates  to  draw  up  measures  for  the 
assimilation,  so  far  as  may  be  possible,  of  their 
laws  governing  patents,  indications  of  origin  and 
trade  marks. 

In  regard  to  patents,  trade  marks  and  literary 
and  artistic  copyright  which  have  come  into  exist- 
ence during  the  war  in  enemy  countries,  the  Allies 
will  adopt,  so  far  as  possible,  an  identical  procedure, 
to  be  applied  as  soon  as  hostilities  cease. 

This  procedure  will  be  elaborated  by  the  tech- 
nical delegates  of  the  Allies. 

D 

Whereas  for  the  purpose  of  their  common 
defence  against  the  enemy  the  Allied  Powers  have 
agreed  to  adopt  a  common  economic  policy,  on  the 
lines  laid  down  in  the  Resolutions  which  have  been 
passed,  and  whereas  it  is  recognised  that  the  effec- 
tiveness of  this  policy  depends  absolutely  upon 
these  Resolutions  being  put  into  operation  forth- 
with, the  Representatives  of  the  Allied  Govern- 
ments undertake  to  recommend  their  respective 
Governments  to  take  without  delay  all  the 
measures,  whether  temporary  or  permanent,  requi- 
site for  giving  full  and  complete  effect  to  this 
policy  forthwith,  and  to  communicate  to  each  other 
the  decisions  arrived  at  to  attain  that  object. 

BOARD  OF  TRADE, 
June  21,  1916. 


A  NATIONAL  SYSTEM 

OF 

ECONOMICS 


THE  STATE 


THE 

COMMUNITY 


Chemistry 


Education 

Primary 

to 
Secondary 

to 

Technical  Schools 
Technical  Colleges 

to 
Universities 


THE  STATE 


Law,  Commercial 
and  other  Regulations 

Defence 

1             Foreign 
Diplomacy 

Taxation 

THE 

COMMUNITY 


Production 


Transportation 


Banking 


Conversion  of  all  Conversion  of 

Natural  Materials  Finished  Materials 

to  to 

Advanced  Materials         Manufactured 

to                           Utilities 
Finished  Materials  

Development  of 
Agriculture 


Delivery  of  all  Materials,       Financing 
Manufactured  of  Total 

Utilities,  Operations 

Agricultural  Products 

to 

Home,  Colonial  and 
Foreign  Markets 


N.B.—Each  of  the  above  headings  can  of  course  be  vtry  largely  subdivided. 


IMPORT  DUTIES 


BASED  ON 
FREEDOM  OF 
FOREIGN  TRADE 

BASED  ON 
RESTRICTION  OF 
FOREIGN  TRADB 

Free  Imports 

Low  Tariff 
Duties 

High  Tariff 
Duties 

Prohibition 

Cross-over  point 

17!  to  ao  per  cent,  ad  valorem 

(estimated) 


A    NATIONAL 
SYSTEM    OF    ECONOMICS 

CHAPTER   I 

THE  CONSIDERATIONS  WHICH  ARISE  OUT 
OF  THE   PARIS  ECONOMIC   RESOLUTIONS 

AFTER  studying  the  Paris  Economic  Resolu- 
tions and  the  speeches  that  have  been  made  by 
various  Cabinet  Ministers  in  support  of  them, 
there  seem  to  be  several  considerations  which  still 
require  to  be  taken  into  account,  and  it  is  this 
circumstance  which  has  been  responsible  for  the 
following  essays  being  written.  The  most  notable 
and  outstanding  consideration  is  that  there  is  not 
in  existence  an  economic  system  under  which  the 
Paris  Economic  Resolutions  can  in  reality  be  made 
effective  by  the  Allied  countries  as  a  whole;  at  any 
rate,  in  the  deliberations  which  have  so  far  been 
given  to  them  there  does  not  appear  any  apprecia- 
tion of  this  fact. 


4    NATIONAL  SYSTEM  OF  ECONOMICS 

Leading  authorities  seem  to  be  in  agreement 
that  the  resolutions  are  at  the  moment  nothing 
but  pious  resolutions,  i.  e.  they  are  idealistic  in 
character,  and  quite  rightly  so,  but  many  of  these 
same  authorities,  if  not  all,  are  for  the  moment 
unable  to  clearly  perceive  by  what  manner  of  means 
or  under  what  economic  system  the  resolutions 
can  be  made  operative,  workable,  and  effective. 
And  the  politicians  and  business  men  who.  are 
discussing  these  matters  seem  to  be  in  a  worse 
predicament;  but  this  is  not  to  be  wondered  at 
considering  that  the  war  and  its  enormous  direct 
and  indirect  non-productive  expenditure,  combined 
with  the  brutality  and  mentality  of  the  German 
Huns,  have  caused  all  sections  of  public  opinion 
in  Great  Britain  to  scrap  their  pre-war  political 
and  economic  views,  which  certainly  did  not  an- 
ticipate or  provide  for  the  conditions  which  have 
now  arisen  in  international  politics.  As  we  have 
had  very  little  time,  therefore,  in  which  to  shape 
our  new  ideas,  and  little,  if  any,  experience  dealing 
with  the  new  economic  situation  which  the  war 
has  brought  forward,  and  will  continue  to  bring 
forward,  there  is  obviously  a  lot  of  thinking  to  be 
done. 

With  a  view,  therefore,  of  assisting  in  this  very 
interesting  work  we  have  devoted  some  consider- 
able time  to  an  examination  of  the  considerations 
which  seem  to  arise  out  of  the  Paris  Economic 


THE  CONSIDERATIONS  5 

Resolutions,  and  the  effect  they  may  have  on  our 
economic  future;  but  it  must  be  admitted  at  the 
outset  that  the  problem  is  a  very  difficult  and  com- 
plex one  to  solve,  inasmuch  as  the  size  of  the 
indemnity,  if  any,  which  may  be  imposed  on  enemy 
countries  has  not  yet  been  determined.  The  size 
of  the  indemnity  to  be  imposed,  if  any,  and  its 
method  of  liquidation  has  a  very  direct  bearing  on 
the  working  and  operation  of  the  Paris  Resolu- 
tions, and  on  the  considerations  which  arise 
therefrom. 

Subject  to  this  aspect  of  the  question  being 
borne  in  mind  we  will  now  proceed  to  examine 
the  considerations  which  seem  to  arise  out  of  the 
resolutions  and  to  suggest  the  steps  we  should 
take  to  (i)  safeguard  the  principles  of  Liberty, 
Freedom  and  Justice  for  all  time,  and  (2)  advance 
the  material  welfare  of  the  people. 

As  they  occur  to  us  the  considerations  which 
arise  out  of  the  Paris  Economic  Resolutions  are  as 
follows — 

(i)  As  it  will  be  necessary  to  impose  an  in- 
demnity upon  Germany  the  question  arises  as  to 
what  are  the  most  effective  means  by  which  the 
Paris  Economic  Resolutions  can  be  applied  in 
order  to  slow  up  the  process  of  the  liquidation  of 
the  indemnity,  and  at  the  same  time  to  make  them 
workable  and  operative;  bearing  in  mind  that 
experience  has  shown  that  the  imposition  of  an 


6    NATIONAL  SYSTEM  OF  ECONOMICS 

indemnity  does  not  necessarily  penalise  the  people 
of  the  country  upon  which  the  indemnity  is,  or 
may  be,  imposed. 

(2)  Are  neutrals  to  be  allowed  to  trade  with 
Allied  nations  and  the  Dominions  upon  the  same 
terms  as  the  Allies  themselves  during  the  process 
of  the  liquidation  of  the  indemnity  by  Germany, 
and  of  the  war  costs  incurred  by  the  Allies  in  the 
defence  of  democratic  principles;  in  view  of  the 
fact  that  neutrals  have  sought  for  and  obtained 
enormous    profits    from    the    Allies    during    the 
progress  of  the  war  in  supplying  goods  and  mate- 
rials in  lieu  of  participating  in  the  struggle  ? 

(3)  During  what  period  of  time  shall  the  Paris 
Economic    Resolutions,    in    so    far    as    they    are 
designed    to   enable    the   Allies    to   facilitate    the 
liquidation  of  their  war  costs,  remain  effective? 
The  time  must  arrive  when  they  will  cease  to  be 
practicable    or    desirable,    particularly    where    the 
interests  of  neutrals  are  concerned. 

(4)  Is  it  the  intention  to  allow  the  Kaiser,  or 
any  member  of  his  family,  possible  heirs  or  suc- 
cessors, to  ever  again  occupy  the  throne  of  Ger- 
many?    If   the    answer   is    in   the   negative   and 
democratic   government   is   introduced  into   Ger- 
many after  the  war  on  approved  lines,  should  we 
modify  our  views  to  accord  thereto  ? 

(5)  What    co-operation    can    we    expect    from 
organised  labour  in  making  the  Paris  Economic 
Resolutions  workable  and  effective  both  in  respect 
of  production  and  politics?     What  must  we  do 
to  ensure  the  necessary  co-operation? 


THE  CONSIDERATIONS  7 

As  the  foregoing  considerations  may  be  assumed 
to  be  the  essence  of  the  Paris  Economic  Resolu- 
tions, and  as  they  would  have  an  important  bear- 
ing upon  the  principle  of  nationality,  if  effectively 
applied,  they  form  part,  in  consequence,  of  the 
main  theme  of  our  discussion  in  the  following 
pages. 

Unfortunately  empiricism  is  synonymous  with 
Laissez  faire  and  Laissez  passer,  the  basis  of  our 
present  economic  life,  with  the  result  that  our 
people  have  been  accustomed  in  the  past  to  follow 
mere  catch  words  and  phrases  and  not  any  definite 
system  of  economic  science.  Our  main  purpose, 
therefore,  in  dealing  with  the  subject  is  to  demon- 
strate, to  the  best  of  our  ability,  that  economic 
science  is  in  a  very  backward  condition  in  the 
world  generally,  and  that  it  is  difficult  to  under- 
stand why  the  professors  at  the  Universities  have 
neglected  its  development  from  the  standpoint  of 
nationality;  it  may,  no  doubt,  be  due  to  their  fond- 
ness of  treating  the  science  more  as  an  historical 
study  rather  than  as  a  practical  present-day  busi- 
ness proposition.  We  shall  have  them  discoursing 
upon  the  wisdom  or  unwisdom  of  our  present 
course  of  action  fifty  years  hence  instead  of  getting 
a  definite  lead  from  them  in  the  present  on  the 
various  problems  we  now  have  to  solve. 


8    NATIONAL  SYSTEM  OF  ECONOMICS 


DEFINITION    OF    RAW    MATERIALS 

The  descriptive  term  "  raw  materials "  which 
occurs  in  the  resolutions  ought  not  to  have  been 
used — it  is  indefinite  in  form.  According  to  the 
dictionary  the  word  "raw"  is  defined  as  "  some- 
thing without  a  skin;  an  open  sore."  In  view  of 
this  it  can  never  be  satisfactorily  explained  why 
such  a  descriptive  term  has,  for  instance,  been 
given  to  iron  ore,  or  how  it  originated.  What 
has  come  to  be  known  as  raw  material,  is  in  reality 
natural  material,  and  is  the  agent  of  production, 
i.  e.  substance  or  matter  in  its  lowest  form  of  utility, 
such  as  iron  ore,  cow  hides,  cotton,  coal,  corn, 
wheat,  barley,  coffee  beans,  cocoa  beans,  oil,  etc., 
and  the  moment  either  of  these  substances  is 
subject  to  a  development  process  it  ceases  to  be 
natural  material  and  becomes  advanced  material. 
An  example  may  be  given  as  follows — 

Iron  ore  is  natural  material  and  the  pig  iron 
produced  therefrom  is  advanced  material;  the  steel 
produced  from  pig  iron  should  be  termed  finished 
material;  and  the  various  manufactures  produced 
from  the  steel  are  not  looked  upon  as  natural  mate- 
rial, advanced  material  or  finished  material,  but  as 
manufactured  utilities.  In  other  words,  the  more 
labour  that  is  employed  in  the  converting  processes 
the  more  do  we  get  away  from  the  natural  material 
stage. 

To  bring  it  nearer  home  we  will  take  the  case  of 


THE  CONSIDERATIONS  9 

cow  hides;  these  are  natural  material,  but  the 
moment  they  are  converted  into  leather  they 
become  finished  material,  and  the  moment  leather 
is  converted  into  boots  the  latter  are  called  manu- 
factured utilities,  made  to  satiate  the  wants  of  man. 

Natural  materials  may  themselves  be  divided 
into  two  categories:  (i)  those  that  are  the 
bounteous  dividend  of  Nature  and  (2)  those  that 
are  the  capital  of  Nature.  In  the  former  may  be 
classed  wheat,  coffee,  cotton,  tea,  fruit,  etc.,  and  in 
the  latter,  coal,  copper,  tin,  iron  ore,  etc.,  but  both 
nevertheless  have  to  be  won  from  Nature  by  man, 
and  so  are  termed  natural  materials.  But  the 
measure  of  his  success  in  the  former  is  determined 
more  by  climatic  conditions  than  by  personal  effort, 
whereas  in  the  latter  the  whims  of  bounteous 
Nature  do  not  affect  him. 

To  those  who  give  careful  thought  and  study 
to  such  problems  it  will  be  obvious  that  the  above 
definition  will  clear  away  many  misconceptions  and 
enable  the  proper  authorities  to  see,  in  the  event 
of  it  eventually  being  found  to  be  desirable,  what 
material  should  be  taxed  and  what  ought  not  to 
be  taxed.  Natural  materials  in  any  form  ought 
not  to  be  taxed,  but  advanced  and  finished  mate- 
rials might  reasonably  have  a  low  tariff  imposed 
on  them  (according  to  the  labour  expended),  and 
according  to  a  recent  notice  in  The  Times,  the 
London  Chamber  of  Commerce  are  recommending 
that  this  formula  should  be  followed. 


io    NATIONAL  SYSTEM  OF  ECONOMICS 

In  the  preparation  of  the  tariff  schedule  which 
the  Government  may  see  fit  to  introduce  for  the 
development  of  British  industry  after  the  war,  it 
should  be  the  duty  of  the  State  to  ensure  that  no 
duty  is  placed  upon  natural  materials  of  any  kind 
whatsoever,  irrespective  of  whether  they  are  of 
enemy  origin  or  not;  but  this  declaration  does  not 
apply  to  advanced  materials  or  finished  materials 
or  other  articles  of  utility,  the  prices  for  which 
include  a  fixed  proportion  for  labour  expended. 

It  should  be  the  further  duty  of  the  State  to 
ensure  that  no  monopoly  of  any  kind  is  created  in 
the  supply  of  any  kind  of  natural  material,  and  for 
purposes  of  production  money  and  credit  may  be 
classified  in  this  category,  for  such  monopolies  are 
obviously  formed  and  maintained  at  the  expense 
of  the  consumer.  There  are  certain  wealthy  cor- 
porations which  exist  for  the  sole  purpose  of 
creating  monopolies  in  natural  materials,  but  these 
should  be  broken  up  by  the  State,  for  they  are  a 
menace  to  cheap  production;  the  community  at 
large  pay  them  huge  profits  to  which  they  are  not 
entitled.  There  is  no  enterprise  involved  in  con- 
trolling natural  materials — financial  power  alone  is 
the  chief  consideration — consequently  such  com- 
binations are  a  danger  to  cheap  production,  and, 
ipso  facto,  to  the  welfare  of  the  individuals  consti- 
tuting the  State.  On  the  other  hand,  large  cor- 
porations which  exist  for  the  purpose  of  developing 
advanced  materials,  finished  materials,  or  utilities, 


THE  CONSIDERATIONS  n 

should  be  left  alone,  and  even  encouraged,  for  it 
is  impossible  for  them  to  create  monopoly  prices 
and  unreasonable  profits  for  the  simple  reason  that 
labour  and  enterprise  must  always  compete  with 
labour  and  enterprise.  These  latter  combinations 
depend  for  their  larger  profits  upon  decreasing 
costs  of  production,1  which  the*  larger  volume  of 
output  will  always  ensure  if  they  are  properly 
managed;  and  for  this  reason  alone  they  are  desir- 
able in  the  interests  of  the  State  because  such 
methods  increase  our  capacity  and  ability  to  export 
and  import.  Whatever  profits,  therefore,  may  be 
earned  by  the  latter  group  can  be  considered  the 
rewards  of  enterprise  and  management.  If  profits 
should,  however,  be  continuously  large,  com- 
petition will  set  in  and  profits  will  be  reduced  in 
proportion  to  the  extent  of  the  competition. 

This  is  an  indisputable  proposition  which  any 
one  can  test  for  himself  by  comparing  the  standard 
prices  of  manufactured  utilities  in,  say,  1913  with 
the  prices  prevailing,  say,  for  the  same  articles  in 
1903,  in  1893,  or  1883.  There  has  been,  and 
there  is  still,  a  natural  tendency  or  inclination  for 
production  to  be  conducted  upon  a  large-scale 
basis,  as  the  history  and  record  of  Joint  Stock 
Companies  will  prove.  The  issued  share  capital 
values  of  Joint  Stock  Companies  always  tend,  with 
rare  exceptions,  to  higher  levels,  clearly  proving 
that  the  respective  managements  recognise  that  in 

1  See  First  Principles  of  Production  (Peddle),  pp.  13-67. 


12    NATIONAL  SYSTEM  OF  ECONOMICS 

order  to  ensure  and  maintain  successful  operations 
(and  the  barometer  in  this  case  is  the  size  of  the 
annual  dividends  paid)  production  must  be  con- 
ducted upon  the  largest  possible  scale  in  order  that 
costs  of  production  per  unit  of  goods  may  be  on 
the  lowest  possible  basis. 

It  is  impossible,  however,  to  conduct  and  main- 
tain production  upon  a  large-scale  basis  unless  the 
national  working  conditions  are  such  as  will  en- 
sure that  distribution  is  conducted  upon  the  same 
comparative  basis :  for  it  will  be  obvious  to  any 
one  who  studies  such  matters  that  it  would  be  futile 
to  produce  commodities  upon  a  large-scale  basis 
for  home  consumption  and  export  unless  there  is 
a  free  market  in  which  they  can  be  distributed,  or, 
in  other  words,  unless  there  is  a  market  demand  to 
be  satisfied.  Such  favourable  conditions  as  we  now 
seek  cannot  be  satisfied  under  our  present  policy 
of  Laissez  faire,  Laissez  passer,  but  only  under  the 
science  of  national  economics  based  on  freedom  of 
trade. 


WHAT    IS     FREE    TRADE?        ITS    DERIVATION 

Now  with  regard  to  the  term  "  Free  Trade  " 
which  is  so  commonly  used,  what  does  it  mean  and 
what  is  its  derivation?  After  a  very  lengthy 
research  we  found  that  the  expression  "  Free 
Trade "  owed  its  origination  to  Adam  Smith's 
policy  of  "  Freedom  of  Trade,"  and  they  are  not 


THE  CONSIDERATIONS  13 

at  all  synonymous.1  Another  instance  of  the 
public  being  led  astray  through  following  a  catch 
or  sentimental  phrase. 

For  some  reason  or  other  modern  economic 
writers,  particularly  in  the  last  century,  have  mis- 
interpreted the  Smithian  doctrine  of  freedom  of 
trade  based  on  National  Economy,  for  free  trade. 
As  we  have  already  indicated  in  our  previous  work, 
the  term  freedom  of  trade  is  not  quite  the  same 
thing  as  free  trade;  the  latter  is  merely  a  loose 
form  of  expression,  and  hence  the  reason  for  the 
question  which  is  often  asked,  "  What  is  free 
trade?" 

The  public  in  the  past  have  usually  divided 
themselves  into  two  groups,  i.  e.  either  the  free 
trade  group  or  the  protectionist  group.  But 
very  few  individuals  really  understand  the  sig- 
nificance of  either  of  these  expressions,  or  what 
they  mean.  They  are  content  to  call  themselves 
Free  Traders  or  Protectionists,  but  if  you  were 
to  ask  them  for  the  foundation  of  their  belief  few 
could  give  it. 

Individuals  should  be  invited  to  take  their  stand 
upon  two  issues,  i.  e.  whether  they  desire  the 
national  business  policy  to  be  based  on  freedom 
of  trade  (not  free  trade,  for  there  can  be  no  such 
thing),  or  on  restriction  of  trade,  which  is  a  pro- 
tective or  prohibitive  policy.  Universal  free  trade 

1  The  subject  is  more  fully  dealt  with  in  On  the  Relation  of 
Imports  to  Exports  (Peddie). 


i4     NATIONAL  SYSTEM  OF  ECONOMICS 

is  impossible,  but  universal  freedom  of  trade  on 
the  lines  suggested  hereafter  is  possible  because  it 
does  not  infringe  on  the  doctrine  of  Equality  of 
Rights. 

The   following   chart   will   indicate   the   proper 
classification — 

IMPORT  DUTIES 


BASED  ON 
FREEDOM  OF 
FOREIGN  TRADF. 

BASED  ON 
RESTRICTION  OF 
FOREIGN  TRADB 

Free  Imports 

Low  Tariff 
Duties 

High  Tariff 
Duties 

Prohibition 

Cross-over  point 

17 J  to  20  per  cent,  ad  valorem 

(estimated) 


From  the  chart  it  will  be  seen  that  the 
two  extremes  are  prohibition  and  free  imports, 
both  of  which  in  a  national  policy  are  imprac- 
ticable, and  this  applies  to  any  working  agreement 
which  may  be  concluded  between  the  Allied 
Governments  for  the  development  of  their  export 
and  import  trade  at  the  conclusion  of  the  war. 
We  cannot  prohibit  imports,  for  to  do  so  would 
defeat  the  object  of  exchange;  we  must  import  in 
order  to  be  able  to  export.  The  nearest  approach 
we  can  make  to  actual  prohibition  is  to  adopt  the 
restrictive  or  protectionist  policy  of  high  tariffs, 
which  in  America,  for  instance,  is  considered  a 
practical  policy. 

Similarly,  we  cannot  have  free  imports  in  ad- 
vanced and  finished  materials  or  manufactured 
utilities  any  more  than  we  can  have  free  service 


THE  CONSIDERATIONS  15 

without  payment.  National  Services  must  be  paid 
for,  and  all  foreign  and  domestic  industry  should 
be  made  to  contribute  alike,  through  the  medium 
of  import  duties  and  taxation,  to  the  cost  of  such 
services.  National  Economics,  therefore,  to  be 
based  on  freedom  of  trade,  must  come  under  the 
heading  of  low  tariff  duties,  for  high  tariff  duties 
make  for  restriction  of  trade. 

It  is  gratifying  to  note  that  the  London  Chamber 
of  Commerce  in  the  tariff  schedules  which  they 
recommend  for  adoption  by  the  Government,  pub- 
lished in  The  Times  recently,  adopt  our  formula 
of  National  Economy  based  on  freedom  of  trade, 
with  the  limit  of  twenty  per  cent,  ad  valorem  which 
is  the  maximum  allowed  under  this  system;  and  it 
is  to  be  hoped  that  the  Chamber  will  continue  to 
identify  itself  with  the  new  movement  and  press 
forward  this  much-needed  reform. 

Although  we  place  the  maximum  duties  at 
twenty  per  cent,  ad  valorem  on  manufactured 
utilities,  it  does  not  necessarily  follow  that  this 
percentage  should  be  adopted  indiscriminately;  the 
precise  duties  to  be  imposed  should  have  some 
relation  to  the  amount  of  taxation,  and  other 
charges,  which  home  manufacturers  have  to  pay 
towards  the  cost  of  our  national  services.  It  is 
just  possible,  however,  that  when  the  war  is  con- 
cluded it  may  be  found  necessary  to  impose  the 
maximum  percentage  in  the  tariff  schedules,  and 
continue  them  for  some  years  to  come,  in  view  of 


1 6    NATIONAL  SYSTEM  OF  ECONOMICS 

the  high  direct  taxation  which  it  will  be  necessary 
for  the  Government  to  impose  to  meet  the  interest 
charges  on  our  war  loans.  But  on  no  account 
should  the  percentage  ever  be  increased  beyond 
twenty  per  cent.,  the  reason  being  that  this  amount 
covers  the  manufacturer's  average  profit.  It 
should  also  be  borne  in  mind  that  twenty  per  cent. 
ad  valorem  equals  twenty-five  per  cent,  on  cost. 


THE    THEORY   OF    AMERICAN    PROTECTION 

As  we  have  more  than  once  asserted,  an  import 
duty  upon  manufactured  utilities  is  not  paid  for 
by  the  consumer;  but  this  proposition  applies  to 
standardised  utilities  only  and  not  to  those  which 
are  not  subject  to  repeat  orders,  nor  to  food,  food 
products,  or  natural  materials. 

In  1911  we  prepared  a  comparative  price  list 
of  various  standardised  machine  tools  and  small 
tools,  which  the  Morning  Post  very  kindly  pub- 
lished, showing  (i)  the  price  of  these  instruments 
made  in  the  United  States  locally;  (2)  the  price  in 
Great  Britain  of  the  same  manufactures;  (3)  the 
price  in  the  United  States  of  the  British-made  pro- 
ductions, plus  the  duty  which  would  have  to  be 
paid  by  the  consumer  in  the  United  States  who 
desired  to  have  the  British-made  articles. 


THE  CONSIDERATIONS  17 

It  will  be  difficult  to  find  a  clearer  demonstration 
than  is  shown  in  the  figures  printed  below.  It 
clearly  shows  that  American  manufacturers,  in 
normal  times,  are  unable  to  take  advantage  of  the 
high  tariff  duties  to  raise  the  price  of  standardised 
articles  of  utility  against  the  home  consumer. 
General  competition,  and  the  rate  of  discount  pre- 
vailing on  the  money-market,  regulates  the  price 
at  which  these  articles  are  sold.  This  proposition 
would  apply  to  British  manufacturers  as  well  as 
American. 

As  we  have  previously  indicated,  large  profits 
are  the  reward  of  enterprise,  but  so  soon  as  an 
industry  has  proved  itself,  competition  steps  in  and 
profits  are  reduced  in  proportion  to  the  extent  of  the 
competition  and  the  rate  of  discount  on  the  money 
market.  Thus,  large  production  ensures  low  cost 
of  production  per  unit  of  goods  produced,  and, 
ipso  facto,  ensures  cheapness  in  the  selling  price. 

In  the  following  table  of  comparative  prices,  the 
British  prices  which  are  shown  were  the  lowest 
quotations  taken  from  the  catalogues  of  two  im- 
portant British  manufacturers,  and  the  American 
prices  were  obtained  direct,  or  through  the  agents 
of  important  American  firms.  It  should  be  noted 
that  the  American  tariff  duties  range  from  thirty 
to  forty-three  per  cent,  ad  valorem,  which  entirely 
prohibits  the  export  of  the  articles  mentioned  to 
America. 


1 8    NATIONAL  SYSTEM  OF  ECONOMICS 


Description. 

U.S.A.  Price. 

British  Price 

U.S.A.  Price 
1      for  British 
Article  plus 
duty. 

£     s.     d. 

£    s.     d. 

£     *     d. 

Standard  Shell  Reamers,  i  in.    . 

050 

067 

087 

Standard    Rose  Shell  Reamers, 

o     c     o 

067 

087 

Standard  Hand  Reamers,  i^  in. 

J 
0     12       6 

/ 
o   12     5 

/ 

o  16     2 

Machine    Reamers  •          .      ;  .» 

o  10     7 

097 

o  12     5 

Rose  Chucking  Reamers,  I  in.  . 

066 

o     711 

o  10     4 

Reamers      for      Morse      Taper 

Holes,  roughing  or  finishing, 

No.  3  

o     9     5 

0104 

o  13     5 

Adjustable    Hand    Reamers,  ij 

o    iq      o 

I        2       O 

i     8     7 

Involute  Gear  Cutters,  i|  D.P., 

y        y 

/ 

j\  in.  dia.  X  i£  in. 

4  12     4 

4  ii   10 

5   »9     4 

Stocking    Cutters,  \\  D.P.,  7^ 

in.  dia.  X  \\  in.  . 

2     l6       0 

2  14     9 

3   ii     2 

Plain    Milling    Cutters,    2^  in. 

dia.  X  T3^  in.  X  i  in.     . 

036 

0     3     9 

o     4  10 

Milling    Cutters    with    Nicked 

Teeth,  ^\  in.  dia.  X  4  in.  X 

i  in.    .         .         .         ,         « 

o   17   10 

121 

i     8     3 

Side    and    Face    Cutters,    4  in. 

dia.  X  £  in.  X  i  in.       .         i. 

o  13     3 

0    12    10 

o  16     8 

Convex    Cutters,    carbon    steel, 

•j-'g  in.  dia.  circle  X  2  in.  dia. 

cutter  .          .         .          .      ,   . 

063 

054 

o     6   ii 

Concave    Cutters,    -fa   in.    dia. 

circle  X  2  in.  dia.  cutter 

076 

074 

096 

Machinist    Hand  Taps  (3   to   a 

set),  §  in  

026 

0       211 

0310 

Hand    Chasers  (Whitworth),  3 

threads          .... 

040 

046 

0510 

Machine  Chasers,  3  threads 

o     5     9 

0     5     5 

067 

End  Mill,  spiral  teeth  and  steel 

shanks,  |  in.  dia.           •         . 

o     S     5 

o     4     8 

o     6     i 

Metal    Slitting    Saws,    5  in.  X 

\  in.  X  I  in.          .         •          . 

o     311 

o     3     9 

o     4  10 

Micrometers,   I  in.  to  measure 

by  thousandths  of  an  inch 

o   13      it 

o  15     o 

019     6 

Twist     Drills,     M.T.     shanks, 

tin  

o     i     5 

o     i     6 

0       III 

Twist    Drills,   straight    shanks, 

O        I       O 

o     i     6 

O        III 

THE  CONSIDERATIONS 


Description. 

U.S.A.  Price. 

British  P  Price 

U.S.A.  Price 
for  British 
Article  plu» 
duty. 

£     *.     d. 

£     s.     d. 

£    s.     d. 

Four     Grooved     Drills,    M.T. 

o     <     3 

050 

066 

Little  Giant  Drill  Chucks,  No.  o. 

j     j 

I       O       O 

o  18     7 

i     3     2 

Hand  Taps  (Whitworth  Stand- 

ard) (3  to  a  set),Taper  Second 

026 

o     3   10 

o     c     o 

Standard  External  and  Internal 

J 

J 

Cylindrical      Gauges,      Ring 

Gauges,  £  in.  dia.           . 

o  16     3 

o  15    10 

i     o     7 

Plug  Gauges,  £  in.   . 

o   10     8 

o  10     5 

o   13     8 

Plain    Pillar    Milling    Machine 

with    overhanging    arm    and 

automatic    feed,  but  without 

vice.    Automatic  longitudinal 

feed  of  table,  10  in.     Trans- 

verse   adjustment    of    table, 

3f  in.    Greatest  distance  from 

centre    of    spindle    to    table, 

8  in.    Complete  with  counter- 

shaft and  spanners 

43     o     o 

42     o     o 

59  '3     3 

Horizontal     Milling     Machine 

complete  with  arbor,  counter- 

shaft  and  spanners.      Longi- 

tudinal feed  of  table,  21   in. 

Gross      movement,      7      in. 

Greatest  distance  from  centre 

of  spindle  to  table,  16  in. 

114  10     o 

114     o     o 

162  16     6 

Heavy       Horizontal       Milling 

Machine     with      all      power 

feeds,    complete    with    arbor, 

countershaft     and     spanners. 

Longitudinal    feed    of    table, 

28  in.   Transverse  adjustment 

of  table,  9  in.     Greatest  dis- 

tance from  centre  of  spindle 

to  table,  19  in.     . 

171   17     6 

167  10     o 

239   10     o 

Same    as    above.     Longitudinal 

feed  of  table,  34  in.     Trans- 

verse   adjustment    of    table, 

*» 

10  in.  Greatest  distance  from 

centre    of    spindle    to    table, 

1  7Q       O       O 

2IO    IO       O 

TOO     IQ       © 

Universal       Milling       Machine 

/  j 

J             J 

20    NATIONAL  SYSTEM  OF  ECONOMICS 


Description. 

U.S.A.  Price. 

British  Price. 

U.S.A.  Price 
for  British 
Article  plus 
duty. 

£    *•     *• 

£    s.     d. 

£     s.    d. 

with  all  power  feeds  complete 

with  universal  dividing  head 

with   3   index  plates,  one  re- 

versible base  block,  tail-stock, 

driving    plate,   work    support 

for  long  work,  3-jaw  universal 

chuck,  set  of  change  wheels 

with  quadrant,  carrier,  index 

chart,  arm  brace,  arbor  with 

distance   collars    and    bushes, 

• 

collet,  swivel  vice,  oil  pump 

and  fittings,two-speed  counter- 

shaft and  spanners 

Automatic  feed,  longitudinal,  "j 

24  in. 
Automatic  feed,  cross,  8£  in.    j 

182     5     o 

178   10     o 

256     2     6 

»             „     vertical,  1  8  in.J 

Universal  Hand  Transverse  and 

vertical  feeds,  automatic  feed, 

longitudinal,  24  in.  X  8|  in. 

X  1  8  in.,  complete  as  above 

171    17     6 

169     5     o 

243   14     3 

Vertical  Milling  Machine  with- 

out    vice,     complete      with 

countershaft        and        arbor. 

Longitudinal    feed    of    table, 

30    in.       Automatic     trans- 

verse   adjustment     of    table, 

12$    in.       Greatest    distance 

from    centre    of    spindle    to 

table,  20  in.           ... 

i  60  i  8     6 

170  10     o 

243   17     o 

(In  this  machine  the  American 

make    has    all    power    feeds, 

while    the    British    has    only 

longitudinal   feed,  automatic. 

They,  however,  form    a    fair 

comparison.) 

NOT«. — "  Comparisons  similar  to  the  above  can  be  obtained  in  the 
following  industries,  viz.  :  Grinding  Machines,  Steel  Rails,  Boots  and 
Shoes,  Watches,  Jewellery,  Sporting  Rifles  and  Guns,  Household  Utensils, 
Typewriting  Machines,  Sewing  Machines,  Cash  Registers,  etc." 


THE  CONSIDERATIONS  21 

If,  then,  we  were  to  put  an  import  duty  on  the 
American  productions  equal  in  amount,  i.  e.  pro 
rata,  to  the  total  direct  and  indirect  taxation, 
including  the  cost  of  operating  the  Factory  Acts, 
Workmen's  Compensation  and  Insurance,  etc., 
British  manufacturers  have  to  pay,  and  which 
might  equal  fifteen  per  cent,  ad  valorem  on  im- 
ports, we  should  not  seriously  interfere  with  the 
competitive  power  of  the  United  States  owing  to 
her  large  producing  capacity,  but  we  would  ensure 
that  American  manufacturers  who  sought  to  use 
our  markets  contributed  to  the  cost  of  our  National 
Services;  not  only  that,  but  by  so  doing  we  should 
also  establish  the  principle  of  equality  of  rights  in 
so  far  as  our  own  manufacturers  are  concerned  by 
placing  competition  upon  a  just  and  equitable  basis. 

If  further  evidence  is  needed  to  prove  that 
American  manufacturers  are  unable  to  derive  any 
advantage  from  the  American  tariff  system,  it  is 
contained  in  the  facts  which  Mr.  Moreton  Frewen 
submitted  in  his  essay  on  theu  Theory  of  American 
Protection  "  in  the  Nineteenth  Century  Magazine 
for  November  1910. 

"  Now  as  to  the  effect  of  Protection  on  Prices. 
There  is  the  striking  incident  of  Muscadine,  the 
Pearl-button  Metropolis  on  the  Wisconsin  River, 
created  by  the  stroke  of  a  pen  in  the  McKinley 
Bill.  Pearl  shirt-buttons,  previously  on  the  free 
list,  had  been  all  imported  from  Austria.  But  it 


22    NATIONAL  SYSTEM  OF  ECONOMICS 

was  rumoured  that  the  raw  material — great  beds 
of  fresh-water  mussels — had  been  discovered  in  the 
upper  tributaries  of  the  Mississippi.  The  result 
of  a  high  tariff  on  shirt-buttons  in  the  McKinley 
Bill  of  1890  was  to  bring  over  to  settle  within  the 
protected  area  a  Viennese  button  manufacturer 
with  a  capital  of  ^4000  and  a  few  skilled  hands. 
From  this  small  beginning  the  turnover  eighteen 
years  later  in  the  factories  on  the  Wisconsin  (1908) 
was  $11,000,000,  and  the  price  of  shirt-buttons 
has  fallen  one-third.  In  the  debate  on  the  Wilson 
Bill  in  1893,  Mr.  (now  Senator)  La  Follette  said— 
"  '  In  earthen  and  glass  ware  the  total  importa- 
tion last  year  was  $i 8,420,634.  This  is  practically 
all  labour.  Our  people  remember  that  before 
1860  we  imported  all  our  pottery;  that  the  duty 
was  increased  from  20  to  55  per  cent.;  that  Ameri- 
can capital  was  interested  and  American  labour 
employed;  that  by  1880  we  were  manufacturing 
pottery  in  every  State  of  the  Union  except  one, 
and  that  under  the  duty  of  55  per  cent,  we  reduced 
the  price  steadily  year  by  year  until  the  reduction 
was  40  per  cent,  below  the  price  we  had  paid  for 
crockery  under  the  tariff  for  revenue.  .  .  .  Our 
people  remember  when  all  the  wire  rods  from 
which  fencing  is  manufactured  were  imported  from 
Germany.  We  imported  150,000  tons  a  year  at 
a  cost  of  $60  per  ton.  They  remember  that  we 
greatly  advanced  the  duty  on  these  rods  in  the 
tariff  of  1883;  that  now,  ten  years  later,  we  are 
manufacturing  nearly  half  a  million  tons  of  these 
rods,  and  their  price  has  fallen  nearly  one-half. 


THE  CONSIDERATIONS  23 

From  this  reduction  in  the  price  of  the  rods  our 
fencing  wire  has  fallen  ten  cents  a  pound  to  four 
cents.3 

"  Or,  again,  take  the  case  of  tinplate.  In  1873 
tinplate  was  selling  at  $12  per  box  of  108  Ib. 
Until  the  McKinley  Tariff  of  1890  all  tin  was 
imported.  Two  years  later,  with  the  high  duty, 
the  entire  United  States  production  of  tinplate 
was  but  590  tons.  In  1908  the  production  was 
580,000  tons.  What  would  to-day  be  the  world's 
price  of  tin  but  for  American  production  through 
Protection?  What,  again,  would  be  the  world's 
price  of  bread  if  France,  a  producer  of  over 
40,000,000  quarters  of  wheat  because  of  her  high 
tariff,  were  a  customer  for,  instead  of  a  producer 
of,  these  40,000,000  quarters? 

"  Take,  again,  the  case  of  men's  gloves.  Gloves 
were  on  the  free  list  in  the  McKinley  Tariff  of 
1890.  The  Dingley  Tariff  of  1897  imposed  a 
heavy  duty,  and  this  is  the  statement  of  Mr. 
Payne,  the  Chairman  of  the  Committee  on  Ways 
and  Means,  when  under  the  new  Act  of  last  year 
he  demanded  a  similar  duty  on  women's  gloves 
also — 

"  'Under  the  McKinley  Tariff  we  were  making 
5  per  cent,  of  our  men's  gloves;  to-day  we  are 
making  90  per  cent.,  and  men's  gloves  are  much 
cheaper  than  they  were  when  we  put  the  duty  on 
them.' 

"  Again,  take  the  instance  of  wire  nails.  In 
1882  there  were  made  in  the  United  States  just 
50,000  kegs  of  wire  nails.  Their  price  at  that 


24    NATIONAL  SYSTEM  OF  ECONOMICS 

time  was  8J  cents  per  Ib.  and  the  duty  i  cent. 
The  McKinley  Tariff  of  1890  raised  this  duty  to 
4  cents.  If  the  amount  of  the  duty  (4  cents)  were 
added  to  the  price  (8  J  cents)  wire  nails  should  have 
risen  to  12^  cents,  whereas  in  1901,  eleven  years 
later,  the  United  States  production  of  nails  had 
risen  from  50,000  kegs  to  9,802,822  kegs. 
America  is  now  an  immense  exporter,  and  the 
price  of  the  nails  has  fallen  to  2^  cents  per  Ib.,  or, 
declares  Senator  Gallinger,  to  '  less  than  one-third 
of  what  they  cost  us  when  we  were  dependent 
upon  foreign  countries.' 

"When  I  first  visited  America  in  1878  steel 
rails  were  selling  at  $67  per  ton.  A  duty  of  $27 
was  imposed,  and  steel  rails  now,  one  year  with 
another,  sell  for  about  the  amount  of  the  duty." 

A  very  popular  illusion  prevails  with  regard  to 
the  establishment  of  new  industries  in  particular 
localities.  It  is  very  commonly  asserted,  for  in- 
stance, that  no  community  can  manufacture  cotton 
in  competition  with  Manchester,  as  the  latter  dis- 
trict is  favoured  by  nature  with  a  peculiar  form 
of  moist  atmosphere  which  gives  to  the  cotton 
fabric  a  sort  of  superior  finish;  also  that  stou4: 
cannot  be  manufactured  anywhere  as  well  as  in 
Dublin,  because  that  locality  is  favoured  by  a 
peculiar  natural  water  which  gives  a  particular 
nip  to  the  liquid;  and  that  beer  cannot  be  made 
anywhere  as  well  as  at  Burton-on-Trent,  as  the 
water  there  has  peculiarities  all  its  own;  and  that 


THE  CONSIDERATIONS  25 

nowhere  else  can  carbon  steel  or  high-speed  steel  be 
manufactured  as  well  as  those  produced  at  Sheffield 
on  account  of  the  water  of  the  river  Don  having 
a  particular  influence  on  the  metals. 

Needless  to  say,  these  are  all  pure  fallacies;  the 
reason  why  other  communities  cannot  manufacture 
the  same  commodities  possessing  the  same  quali- 
ties as  those  mentioned  is  that  they  do  not  possess 
the  same  particular  experience,  knowledge,  and 
tradition,  which  virtues  can  only  be  acquired  at 
the  expense  of  custom  and  time.  Money  cannot 
acquire  the  experience  and  knowledge  which  the 
local  labour  has  acquired;  in  addition  to  which 
there  is  a  certain  standard  of  proficiency  in  regard 
to  the  quality  and  finish  of  the  production  which 
prevails  to  which  all  the  local  labour  subconsciously 
or  consciously  directs  its  energies.  But  such 
standards  are  not  created  by  climate  or  any  other 
natural  conditions :  they  are  created  and  acquired 
by  the  local  communities  through  long  training 
and  habit. 

A  very  useful  illustration  is  to  be  found  in  the 
case  of  the  small  arms  industry.  The  home  of 
this  industry  is  in  Birmingham,  yet  the  Govern- 
ment have  a  small  arms  factory  established  at 
Enfield  Lock,  near  London.  The  cost  of  pro- 
duction of  the  small  arms  at  the  latter  place  is  not 
as  low  as  at  Birmingham,  nor  the  quality  as  good, 
simply  because  the  traditional  habits  and  standard 


26    NATIONAL  SYSTEM  OF  ECONOMICS 

of  proficiency  prevailing  in  the  locality  is  not  so 
high. 

The  only  manner  by  which  these  difficulties  can 
be  overcome  by  those  who  contemplate  starting  a 
new  industry  which  is  foreign  to  a  community  is 
to  obtain  the  best  of  the  brains,  experience,  and 
intelligence  from  the  community  possessing  these 
the  most,  and  to  secure  the  most  modern  and  up- 
to-date  plant,  embodying  the  latest  practice,  which 
brains,  experience,  and  intelligence  consider  to  be 
the  best  available  for  the  purpose. 

Any  country  or  community  can  establish  a  new 
industry  within  its  borders  provided  it  is  content 
to  spend  the  money  and  the  necessary  time  in  ac- 
quiring it,  and  has  a  sufficiently  large  market  in 
which  the  production  can  be  consumed  or  dis- 
tributed. The  popular  illusion,  therefore,  that 
climatic  conditions  or  nature  has  any  influence  on 
the  successful  development  of  a  manufacturing 
industry  is  erroneous.  The  only  direction  in 
which  nature  or  climatic  conditions  have  any 
influence  is  in  the  growth  or  development  of 
natural  materials;  some  grow  best  in  tropical 
zones,  others  in  temperate  zones;  or,  again,  nature 
and  climatic  conditions  may  have  an  effect  on  the 
energy  and  quality  of  labour:  it  is  well  known 
that  white  men  work  at  their  best  in  temperate 
zones. 

Beyond  these  instances,  however,  we  know  of 


THE  CONSIDERATIONS  27 

no  other  direction  in  which  production  can  be 
materially  affected  by  nature  or  climatic  conditions 
which  men  with  enterprise,  experience  and  intelli- 
gence cannot  overcome;  and  this  is  the  general 
theory  underlying  American  Protection. 


ADAM  SMITH'S  NATIONAL  ECONOMY  BASED  ON 
FREEDOM  OF  TRADE 

Smith  may  be  considered  to  have  been,  and  is 
still,  for  that  matter,  the  greatest  of  all  our  political 
economists;  he  laid  down  the  basis  of  the  science 
of  National  Economy  based  on  freedom  of  trade, 
but  his  theories  have  been  greatly  misunderstood; 
it  would  seem  to  be  desirable,  in  the  solution  of 
the  problems  we  now  have  before  us,  that  we 
should  revert  to  the  principles  he  so  ably  enunci- 
ated.1 Smith's  National  Economy  was  intended 
by  him  to  be  a  running-through  system,  i.  e.  a 
theory  of  the  general  principles  which  ought  to 
run  through  and  be  the  foundation  of  the  laws 
regulating  the  development  of  the  industry,  com- 
merce and  justice  of  all  nations.  In  other  words, 
he  obviously  contended  that  it  was  possible  to 
reduce  National  Economy  to  a  definite  science 
by  which  cause  and  effect  could  "be  accurately 
determined. 

1  See   On  the  Relation  of  Imports  to  Exports   (Peddie),  PP- 
89-I37- 


28    NATIONAL  SYSTEM  OF  ECONOMICS 

Smith  gives  a  clear  indication  of  what  was  in 
his  mind  at  the  end  of  his  work,  On  the  Theory 
of  Moral  Sentiments.  On  pages  339  and  340, 
Section  IV,  Part  VII,  he  writes  as  follows — 

"  It  might  have  been  expected  that  the  reason- 
ings of  lawyers,  upon  the  different  imperfections 
and  improvements  of  the  laws  of  different  coun- 
tries, should  have  given  occasion  to  an  inquiry 
into  what  were  the  natural  rules  of  justice  inde- 
pendent of  all  positive  institution.  It  might  have 
been  expected  that  these  reasonings  should  have 
led  them  to  aim  at  establishing  a  system  of  what 
might  properly  be  called  natural  jurisprudence,  or 
a  theory  of  the  general  principles  which  ought  to 
run  through  and  be  the  foundation  of  the  laws  of 
all  nations.  But  though  the  reasonings  of  lawyers 
did  produce  something  of  this  kind,  and  though 
no  man  has  treated  systematically  of  the  laws  of 
any  particular  country,  without  intermixing  in  his 
work  many  observations  of  this  sort;  it  was  very 
late  in  the  world  before  any  such  general  system 
was  thought  of,  or  before  the  philosophy  of  laws 
was  treated  of,  by  itself,  and  without  regard  to  the 
particular  institutions  of  any  one  nation.  In  none 
of  the  ancient  moralists  do  we  find  any  attempt 
towards  a  particular  enumeration  of  the  rules  of 
justice.  Cicero  in  his  Offices,  and  Aristotle  in  his 
Ethics,  treat  of  justice  in  the  same  general  manner 
in  which  they  treat  of  all  the  other  virtues.  In  the 
laws  of  Cicero  and  Plato,  where  we  might  naturally 
have  expected  some  attempts  towards  enumeration 


THE  CONSIDERATIONS  29 

of  those  rules  of  natural  equity,  which  ought  to 
be  enforced  by  the  positive  laws  of  every  country, 
there  is,  however,  nothing  of  this  kind.  Their 
laws  are  laws  of  police,  not  of  justice.  Grotius 
seems  to  have  been  the  first  who  attempted  to  give 
the  world  anything  like  a  system  of  those  principles 
which  ought  to  run  through,  and  be  the  founda- 
tion of  the  laws  of  all  nations;  and  his  treatise  of 
the  laws  of  war  and  peace,  with  all  its  imperfec- 
tions, is  perhaps  at  this  day  the  most  complete 
work  that  has  yet  been  given  upon  the  subject. 
I  shall  in  another  discourse  endeavour  to  give  an 
account  of  the  general  principles  of  law  and 
government,  and  of  the  different  revolutions  they 
have  undergone  in  the  different  ages  and  periods 
of  society,  not  only  in  what  concerns  justice,  but 
in  what  concerns  police,  revenue,  and  arms,  and 
whatever  else  is  the  object  of  law;  I  shall  not, 
therefore,  at  present  enter  into  any  further  detail 
concerning  the  history  of  jurisprudence." 

The  italics  are  ours. 

We  have  felt  it  desirable  to  submit  this  quota- 
tion for  consideration  in  the  present  discourse  in 
order  to  demonstrate,  as  we  have  already  suggested, 
that  Smith  has  been  greatly  misunderstood  and 
misinterpreted.  Some  people  may  say,  of  course, 
that  it  does  not  matter  what  Smith  thought  in  his 
generation — we  have  our  own  difficulties  to  solve. 
But  it  does  matter  inasmuch  as  we  require  to  pay 
attention  to  those  modes  of  thinking  which  in  the 


30    NATIONAL  SYSTEM  OF  ECONOMICS 

past  have  largely  and  seriously  influenced  public 
opinion,  and  in  which  we  may  find  the  roots  of  our 
present  economic  system  and  trouble.  If  we  can 
place  these  in  proper  perspective,  may  we  not  then 
be  going  a  long  way  towards  persuading  present- 
day  tariff  reformers  and  free  traders,  and  par- 
ticularly the  working  men,  to  look  at  the  problem 
of  national  efficiency  from  the  same  angle  of 
vision,  and,  by  so  doing,  assure  that  the  Paris 
Economic  Resolutions  will  be  adopted  whole- 
heartedly and  made  workable  in  a  definite  and 
precise  economic  scheme.  But  whatever  the  ulti- 
mate decision  may  be  we  must  do  everything  we 
possibly  can  to  avoid  the  reintroduction  of  any- 
thing resembling  the  Mercantile  System  in  this 
country.  We  mention  this  because  we  note  there 
is  a  tendency  in  the  Paris  Economic  Resolutions 
to  revert  to  this  system,  but  we  hope  it  will  be 
destroyed  in  its  initial  stages. 

No  matter  how  strong  our  anti-German  feeling 
may  be,  we  must  discountenance  the  granting  of 
monopolies  and  privileges,  bounties  and  subsidies, 
to  privileged  corporations  for  exploitation.  The 
most  effective  way  of  dealing  with  Germany  and 
her  allies  after  the  war  in  the  economic  sphere 
of  activity  is  to  adhere  to  sound  economic  prin- 
ciples, and  which,  above  every  other  consideration, 
should  be  consistent  with  democratic  principles  and 
democratic  government.  We  shall  have  occasion 


THE  CONSIDERATIONS  31 

to  refer  to  this  aspect  of  the  question  again  at  a 
later  stage. 

The  economic  science  which  prevailed  in  Adam 
Smith's  time  was  the  Mercantile  System,  i.  e.  the 
granting  by  the  State  of  monopolies  and  privi- 
leges, bounties  and  subsidies,  to  certain  companies 
for  exploitation  combined  with  high  tariffs,  and 
the  sole  purpose  he  had  in  view  in  writing  the 
Wealth  of  Nations  was  to  destroy  this  system,  in 
which  object  he  ultimately  succeeded.  At  the 
same  time  Smith  sought  to  establish  the  science  of 
"  National  Economy  based  on  Freedom  of  Trade," 
which  system  was  intended  to  run  through  and 
be  the  foundation  of  the  laws  regulating  our 
industry  and  commerce;  but  instead  of  this  our 
eighteenth-century  economists  led  us  on  to  the 
science  of  Laissez  faire  and  Laissez  passer,  which 
time  and  history  have  proven  to  be  unsound. 

Smith's  system  was  constituted  on,  and  provided 
for,  the  adoption  of  low  tariffs;  and  although  it 
may  not  be  generally  realised,  the  Americans  have 
at  the  present  moment  a  system  of  National  Eco- 
nomy based  on  restriction  of  trade,  i.  e.  consti- 
tuted on  high  tariffs,  and  if  a  Republican  majority 
is  obtained  at  the  elections  next  November  we  may 
look  forward  to  seeing  the  import  duties  on  manu- 
factures being  restored  to  the  high  level  which  pre- 
vailed during  the  last  regime  of  the  Republicans. 

The  great  and  leading  object  of  Adam  Smith's 


32    NATIONAL  SYSTEM  OF  ECONOMICS 

fundamentals,  as  is  commonly  known,  was  to 
demonstrate  that  the  most  effectual  plan  for  ad- 
vancing a  people  to  greatness  was  to  maintain  that 
order  of  things  which  nature  had  pointed  out,  and 
to  allow  every  man,  so  long  as  he  had  not  violated 
the  laws  of  justice,  to  pursue  his  own  interests  in 
his  own  way,  and  to  bring  both  his  capital  and  his 
industry  into  the  freest  competition  with  those  of 
any  other  man  or  order  of  men,  whether  at  home 
or  in  foreign  countries.  But  he  also  stated  that 
it  would  appear  to  be  u  generally  advantageous  to 
lay  some  burden  upon  foreign  for  the  encourage- 
ment of  domestic  industry,  when  some  tax  is  im- 
posed at  home  upon  the  produce  of  the  latter.  In 
this  case  it  seems  reasonable  that  an  equal  tax 
should  be  imposed  upon  the  like  produce  of  the 
former.  This  would  not  give  the  monopoly  of 
the  home  market  to  domestic  industry,  nor  turn 
towards  a  particular  employment  a  greater  share 
of  the  stock  and  labour  of  the  country  than  what 
would  naturally  go  to  it.  It  would  only  hinder 
any  part  of  what  would  naturally  go  to  it  from 
being  turned  away  by  the  tax  into  a  less  natural 
direction,  and  would  leave  the  competition  between 
foreign  and  domestic  industry,  after  the  tax,  as 
nearly  as  possible  upon  the  same  footing  as  before 
it."  A  further  argument  that  Smith  put  forward 
was  that  "  Defence  was  of  more  importance  than 
opulence." 


THE  CONSIDERATIONS  33 

These,  then,  are  the  views  of  Adam  Smith,  the 
genius  who  is  supposed  to  have  sown  the  seeds  of 
the  present  system  of  free  trade,  whatever  that 
means.  But  he  was  no  more  a  free  trader  as 
it  is  understood  at  present  than  was  Joseph 
Chamberlain.  Some  people  may  question  this 
view,  but  it  is  indisputable.  That  Smith  had  in 
mind  a  National  System  may  be  gathered  from  the 
fact  that  he  began  his  great  work  with  two 
volumes  on  The  Theory  of  Moral  Sentiments;  and 
followed  these  with  The  Wealth  of  Nations.  Had 
his  life  been  spared  a  few  years  longer  it  was  his 
intention  to  have  developed  a  further  work  on  the 
theory  of  jurisprudence  which  he  had  long  con- 
templated and  projected.  There  is  here  indicated 
system  and  order.1 

Now  our  main  purpose  in  referring  to  this  par- 
ticular aspect  of  the  question  again  is  to  explode 
certain  abstract  theories  and  the  accompanying 
catch  phrases  which  usually  come  forward  in  a 
discussion  of  this  sort,  and  to  make  the  tariff 
reformers  and  the  free  traders  realise  that  they 
have  been,  as  it  were,  "  chasing  the  shadow  and 
not  the  substance."  And  that  the  strength  and 
efficiency  of  the  nation  in  the  affairs  of  nations 
should  be  the  main  and  paramount  consideration 
with  all,  Liberal  or  Tory,  at  this  stage  of  our  life. 

1  See  further  references,  see  pp.  241  herein. 
D 


34    NATIONAL  SYSTEM  OF  ECONOMICS 

And  that  on  no  account  should  the  granting  of 
bounties  or  subsidies  be  permitted. 

If  both  sides  can  be  made  to  realise  this,  then 
the  ground  is  clear  for  common  action  to  be  taken 
in  the  development  of  the  Paris  Economic  Resolu- 
tions; of  a  strong  national  and  imperial  policy; 
and  also  a  sound  scheme  of  imperial  federation 
which,  in  the  light  of  war  experience,  all  shades 
of  political  opinion  in  this  country  now  seem  to 
consider  to  be  essential  and  desirable. 


CHAPTER   II 

ON  THE  CONDITIONS  REQUIRED  TO 
MAKE  THE  PARIS  ECONOMIC  RESOLU- 
TIONS WORKABLE  AND  EFFECTIVE 

THERE  has  never  been  such  a  call  upon  the  elder 
democratic  European  nations  to  make  such  per- 
sonal and  material  sacrifices  for  the  cause  of 
Liberty,  Freedom  and  Justice,  as  in  the  case  of 
the  present  war,  and  it  is  to  be  hoped  that  there 
will  never  be  another.  And  similarly  there  will 
never  be  such  a  penalty  imposed  upon  the  elder 
Democracies  who  have  fought  for  and  maintained 
the  principles  of  Liberty,  Freedom  and  Justice 
throughout  the  world  as  the  one  they  will  have 
to  assume  at  the  conclusion  of  the  war.  The 
costs  of  the  war,  and  the  enormous  taxation  which 
must  be  imposed  to  meet  the  interest  charges  and 
liquidate  capital  debt  as  the  inheritance  of  war, 
can  only  be  provided  for  out  of  the  future  profits 
of  industry,  and  it  will  necessarily  result,  with  the 
National  Economic  System  which  prevails  with  us 
at  present,  in  a  general  liquidation  of  wages  and 

35 


36    NATIONAL  SYSTEM  OF  ECONOMICS 

prices.  In  fact,  no  matter  what  system  prevailed, 
it  would,  unfortunately,  be  impossible  to  stop  the 
liquidation  which  must  ensue;  but  it  is  possible  to 
mitigate  the  severe  depression  which  will  inevit- 
ably come,  and  National  Economics  based  on  free- 
dom of  trade  is  the  instrument  which  it  will  be 
necessary  to  employ  in  the  United  Kingdom  to 
effect  this  purpose. 

The  Paris  Economic  Resolutions  are  a  step  in 
the  right  direction;  they  are  and  can  only  be  the 
proper  basis  of  the  new  adjustment  which  will 
have  to  be  made  in  the  Allies'  export  and  import 
trade  in  view  of  the  cause  and  origin  of  war;  but 
by  what  manner  of  means  can  these  be  made  the 
most  workable  and  the  most  effective?  Under 
what  system  do  we  propose  to  apply  them  ?  It 
should  be  borne  in  mind  that  the  Economic  Policy 
we  are  now  committed  to  by  the  adoption  of  the 
Resolutions  involves  a  considerable  change  and 
dislocation  in  the  character  of  the  import  and 
export  trade  transacted  by  us  previous  to  the  war, 
i.  e.,  for  instance,  in  the  year  1913-14.  The 
source  and  origination  of  our  previous  trade  will 
be  materially  altered,  and  it  will  necessarily  take 
some  considerable  time  before  our  merchants  and 
manufacturers  settle  down  to  the  new  conditions. 
It  is  desirable,  therefore,  that  no  time  should  be 
lost  in  bringing  into  operation  effective  economic 
working  conditions  within  which  all  phases  of 


THE   PARIS   RECOMMENDATIONS    37 

national  activity  can  be  allowed  full  scope  and 
play.  Preparations  will  have  to  be  made,  and 
obviously  as  much  time  as  possible  should  be 
allowed  for  this  purpose. 

We  are  well  aware  of  the  congestion  of  Par- 
liamentary legislation  and  obviously  of  the  strain 
and  high  pressure  to  which  our  Ministers  are 
subject  in  the  conduct  of  their  respective  offices. 
But  this  particular  aspect  of  the  question  is  not 
peculiar  to  war  conditions  alone;  it  had  its  origina- 
tion in  the  empirical  system  of  Laissez  faire  upon 
which  in  peace  time  all  Government  conduct  and 
policy  was  based.  In  our  private  life,  however, 
if  we  are  afflicted  with  a  disease  or  a  growth,  we 
usually,  with  the  aid  of  the  best  medical  and  surgical 
advice  available,  apply  drastic  remedies  to  cure. 
Any  disease  or  growth  in  the  system  of  Govern- 
ment which  vitally  affects  the  life  of  the  nation 
can  be  no  exception  to  the  rule.  It  therefore  can 
be  no  excuse  to  say  that  such  remedial  measures 
as  may  be  necessary  to  achieve  our  purpose  cannot 
be  effected  in  war  time.  In  the  science  of 
government,  practice  and  theory  should  at  all 
times  be  synonymous.  If  this  be  so,  then  the 
machinery  of  government  should  be  capable  of 
dealing  with  such  questions  as  we  now  raise,  at 
all  times,  either  in  peace  or  war. 

It  is  with  a  view,  therefore,  of  rendering  such 
assistance  as  we  can  that  we  now  proceed  to 


3  8    NATIONAL  SYSTEM  OF  ECONOMICS 

examine  the  considerations  which  arise  out  of  the 
Resolutions. 

In  the  problems  we  have  to  solve,  it  should  be 
remembered  that  we  have  not  only  ourselves  to 
consider,  but  our  Allies,  the  Dominions,  and 
Neutrals;  and  lastly,  but  not  by  any  means  the 
least,  we  have  to  be  careful  to  ensure  that  the 
measures  we  may  seek  and  ultimately  apply  in 
order  to  make  the  results  effective  shall  not  con- 
stitute a  hardship  upon  the  workpeople  of  each 
of  the  Allied  countries  concerned,  i.  e.  the  velocity 
of  the  circulating  media  and  wages  should, 
consistent  with  the  new  working  conditions  and 
circumstances  which  will  prevail,  be  maintained  at 
the  highest  maximum  possible,  as  otherwise  the 
Resolutions  will  lose  their  utility  and  vitality. 

It  should  be  our  main  achievement  to  divert  as 
much  of  the  international  trade  formerly  trans- 
acted by  Germany  to  our  Dominions,  France, 
Russia,  Italy  and  our  other  Allies  in  the  shortest 
possible  time  so  that  we  may  collectively  endeavour 
to  reach  the  total  volume  of  trade  transacted  by 
the  world  in  the  year  1913,  which,  it  will  be 
obvious,  will  be  necessary  in  order  to  maintain 
our  respective  populations  in  an  equally  or  more 
prosperous  condition  after  the  war  is  concluded. 

The  anti-German  feeling  is  very  strong  among 
our  people,  and  will  be  for  many  years  to  come, 
but  we  should  be  careful,  nevertheless,  not  to  place 


THE   PARIS   RECOMMENDATIONS    39 

ourselves  in  the  position  of  the  obstinate  person 
who  "  cut  off  his  nose  to  spite  his  face." 

Our  national  inclination  is  to  refuse  to  have 
any  international  intercourse  with  the  Germans 
after  the  war.  But  would  it  be  wise  to  pursue 
this  natural  sentiment  to  the  extreme?  In  view 
of  the  fact  that  we  must  necessarily,  by  taking 
extreme  measures,  be  limiting  the  purchasing 
power  and  financial  activity,  of  the  international 
market  as  a  whole. 

The  safest  and  perhaps  soundest  course  to 
pursue,  in  the  circumstance,  would  be  to  allow 
public  sentiment  to  be  the  sole  arbiter  as  to  the 
tendency  of  our  future  international  trade,  for  it 
will  of  itself  be  the  determining  factor.  Beyond 
establishing  proper  national  working  conditions 
and  settling  the  future  political  position  and  rela- 
tions of  the  European  nationalities,  it  would  be 
unwise  of  the  Government  to  introduce  special 
legislation  of  a  restrictive  nature  against  enemy 
countries;  it  would  only  disturb  international 
transactions  in  the  economic  world  long  after 
peace  is  restored. 

Germany  and  her  Allies  should  be  allowed  to 
resume  their  position  in  the  comity  of  nations 
after  peace  is  declared,  subject  to  the  provisions 
such  as  we  will  hereinafter  specify.  To  act  other- 
wise would  only  hinder  the  establishment  of  a 
permanent  and  lasting  peace.  Let  us  above  all 


40    NATIONAL  SYSTEM  OF  ECONOMICS 

secure  the  overthrow  of  militarism  and  substitute 
in  its  place  healthy  and  legitimate  competition  in 
industry  and  commerce,  the  arts  and  sciences  which, 
notwithstanding  anything  that  may  be  said  to  the 
contrary,  is  to  the  general  advantage  of  the  people 
of  all  nations. 

In  view  of  prevailing  sentiment  it  requires  a 
great  deal  of  courage  to  advocate  such  a  policy  at 
the  present  time;  but  our  sole  and  main  purpose 
is  to  safeguard  the  future  welfare  of  the  people; 
and  particularly  the  men  who  will  return  from 
the  trenches  at  the  conclusion  of  the  war,  for 
whom  profitable  employment  will  have  to  be 
found.  Anti-German  sentiment  and  material 
welfare  would  not  be  good  bed  companions  in 
times  of  adversity;  they  are  certain  to  divorce 
themselves,  and  will  perhaps  do  so  presently. 


ON  ENEMY  ALIEN  TRADE  AFTER  THE  WAR 

It  would  be  safe  to  assume  that  if  an  indemnity 
is  imposed  on  Germany  it  can  only  be  liquidated 
by  the  export  of  manufactures,  natural  materials, 
or  other  merchandise.  And  the  larger  the  in- 
demnity the  more  must  Germany  export. 

Now,  assuming  the  indemnity  to  be  imposed  is 
placed  at  ^5,000,000,000,  the  interest  charges 
alone,  based  on  a  five  per  cent,  basis,  would  be 
^250,000,000  per  annum,  and  this  sum  could 


THE   PARIS   RECOMMENDATIONS    41 

only  be  met  and  provided  for  out  of  Germany's 
export  trade.  And  if  capital  redemption  be 
included  the  total  interest  and  capital  charges 
would,  no  doubt,  be  between  ^350,000,000  and 
^400,000,000;  add  to  this  Germany's  after  the 
war  minimum  normal  trading  power  in  exports 
and  you  get  the  enormous  total  of  at  least 
,£750,000,000,  perhaps  ^850,000,000,  which 
Germany  would  have  the  power  to  export,  and  we 
unfortunately  cannot  stop  it,  i.  e.  if  we  impose  the 
indemnity  which,  of  course,  is  unavoidable. 

The  figures  mentioned  are  not  fanciful,  bearing 
in  mind  the  experience  of  the  Franco-Prussian 
War.  It  will  be  remembered  that  France  was 
industrially  very  active  during  the  time  she  was 
liquidating  the  indemnity  to  Germany,  whilst  the 
latter  was  undergoing  a  period  of  industrial 
depression  during  the  same  period. 

We  have  also  to  bear  in  mind  that  Germany,  in 
order  to  be  able  to  export  her  various  rnanu-* 
factures  so  as  to  correct  her  adverse  Foreign 
Exchanges  and  meet  her  liabilities,  must  be  so 
placed  as  to  have  the  power  to  import  all  natural 
materials,  etc.,  she  may  require  with  which  to 
begin  and  complete  her  manufacturing  processes. 
There  will  be  contained  in  the  value  of  the  manu- 
factures and  other  goods  exported  by  Germany  a 
certain  proportion  representing  natural  materials 
which  German  manufacturers  will  have  to  pur- 


42    NATIONAL  SYSTEM  OF  ECONOMICS 

chase  in  foreign  countries.  If  Germany,  there- 
fore, is  to  continue  to  do  this,  she  must  be  placed 
in  the  position  to  export  further  goods,  over  and 
above  the  amount  required  for  the  interest  and 
capital  charges  of  the  indemnity,  to  cover  the  cost 
of  the  materials  required  for  these  services,  and 
her  own  domestic  requirements. 

As  she  can,  therefore,  only  pay  for  such  natural 
materials  as  she  may  require  by  further  exports, 
the  minimum  figure  of  ^750,000,000  mentioned 
above  can  in  no  sense  be  considered  fanciful. 

The  statement  that  is  made  that  it  would  be 
impossible  for  Germany  to  transact  such  a  colossal 
business  as  is  mentioned  because  she  will  be  a 
bankrupt  nation  is  all  moonshine.  It  is  true 
that  financially  Germany  will  be  bankrupt,  but 
her  people  must  live  and  find  an  outlet  for 
their  energies,  particularly  if  they  are  called  upon 
to  pay  an  indemnity.  Bankruptcy  means  a 
liquidation  of  wages  and  prices,  but  does  this  not 
add  to  the  danger  in  the  case  of  Germany,  having 
regard  to  the  fact  that  her  industrial  efficiency  is 
second  to  none?  It  is  a  pure  dream  to  imagine 
that  German  organisation,  her  scientific  methods, 
her  experience  and  knowledge  of  production,  can 
be  destroyed  through  bankruptcy.  These  things 
are  a  wealth  in  themselves.  Does  it  not  rather 
mean  that  Germany,  in  the  event  of  bankruptcy, 
must  of  necessity  produce  on  a  lower  basis  of 


THE   PARIS   RECOMMENDATIONS    43 

cost  than  the  Allies  in  order  to  rehabilitate  her 
position  and  pay  the  indemnity  that  may  be 
imposed. 

In  view  of  the  foregoing  it  may  be  seriously 
questioned  whether  the  imposition  of  a  substantial 
indemnity  on  Germany  that  can  only  be  satisfied 
by  German  exports  is  worth  while.  Personally, 
we  doubt  the  advisability  of  it.  At  the  early 
stages  of  our  investigations  we  thought  it  was,  and 
that  the  indemnity  ought  to  be  imposed  in  such 
a  manner  as  to  make  its  liquidation  as  long  and 
as  tedious  as  possible;  and  that  Germany  ought 
not  to  be  allowed  to  liquidate  the  indemnity  in  a 
short  period  of  time,  but  that  the  penalty  should 
be  imposed  in  such  a  manner  as  to  make  its  burden 
felt  "  even  unto  the  third  and  fourth  generations  " 
— say  seventy-five  to  a  hundred  years — in  order 
that  future  German  generations  might  be  made  to 
fully  realise  the  sins  and  iniquities  of  the  present. 
In  other  words,  that  Germany  should  be  made 
"  the  hewers  of  wood  and  drawers  of  water  "  for 
the  Allies  for  generations  to  come;  but  the  applica- 
tion of  this  sentiment,  and  it  is  nothing  more  than 

J  D 

a  sentiment,  raises  all  sorts  of  difficult  and  complex 
problems.  In  giving  way  to  this  sentiment  we 
should  be  losing  our  dignity  and  overlooking  the 
fact  that  the  strength  of  our  economic  future  can 
only  be  safeguarded  by  the  adoption  of  sound 
economic  principles  as  the  basis  of  our  future 


44    NATIONAL  SYSTEM  OF  ECONOMICS 

national  business  policy;  no  anti-German  senti- 
ment should  be  allowed  to  dominate  or  weaken 
our  better  judgment  in  this  respect. 

Our  principal  and  main  achievement  should  be 
to  extract  from  Germany  as  large  an  indemnity  as 
she  can  be  made  to  pay  in  the  short  space  of  two 
years.  And  if  it  should  be  our  privilege  to  have 
the  power  to  impose  an  indemnity  we  should  also, 
ipso  facto,  have  the  power  to  effect  a  redistribution 
of  German,  Austrian,  Bulgarian  and  Turkish  terri- 
tory; also  to  ensure  the  delivery  of  a  portion  of 
their  Mercantile  Fleet  of  an  amount  sufficient  to 
cover  the  ton  for  ton  theory — i.  e.  such  of  our 
losses  as  are  due  to  their  submarine  campaign.  It 
is  in  this  direction,  we  believe,  that  our  future 
course  of  action  and  energies  should  be  directed. 

An  indemnity  which  can  be  imposed  and 
liquidated  in  two  years  combined  with  a  redistribu- 
tion of  German,  Austrian,  Bulgarian  and  Turkish 
territory  and  the  introduction  of  proper  parlia- 
mentary Government  would  be,  in  our  view,  the 
most  effective  means  of  assuring  the  future  peace 
of  Europe  and  that  tranquillity  and  equilibrium 
in  the  economic  world  which  we  all  desire  to  see 
established  after  the  conclusion  of  the  war. 


THE   PARIS    RECOMMENDATIONS    45 


ON  ALLIED  TRADE;  AND  THE  NECESSITY  OF 
CO-ORDINATING  TARIFF   SCHEDULES 

Each  of  the  Allied  countries  and  dominions 
have  tariff  schedules  which  were  designed  to  pro- 
tect, and  advance,  the  welfare  of  their  respective 
national  industries  in  accordance  with  the  political 
views  and  ideals  prevailing  prior  to  the  war.  It 
is  obvious,  therefore,  that  as  each  of  the  Allied 
countries  were  pursuing  an  economic  policy 
seemingly  beneficial  to  themselves  prior  to  the 
war,  the  present  tariff  schedules,  being  the  natural 
outcome,  have  obviously  lost  their  utility  when  it 
comes  to  effectively  dealing  with,  and  applying, 
the  Paris  Economic  Resolutions,  unanimously 
approved  of,  and  adopted,  by  representatives  of 
each  of  the  Allied  Governments  in  conference. 

The  strategy  of  the  Military  Commands  of  the 
Allied  Governments  have  been  co-ordinated  in 
order  to  deal  effectively  with  the  enemy;  does  it 
not  therefore  follow  that  it  is  just  as  essential  for 
them  to  co-ordinate  their  tariff  schedules  in  like 
manner  if  it  is  the  intention  to  deal  effectively  with 
the  Paris  Economic  Resolutions,  about  which,  we 
presume,  there  can  be  no  question  or  shadow  of 
doubt. 

If  this  be  so,  then  by  what  manner  of  means  can 
we  accomplish  the  desired  object?  for  unless  the 


46    NATIONAL  SYSTEM  OF  ECONOMICS 

tariff  schedules  are  co-ordinated  there  will  come  a 
time  when  our  Allies  will  charge  us  with  having 
pursued  our  own  interests  to  their  detriment.  We 
shall  be  the  strongest  power  industrially  and 
financially  among  the  Allies,  and  will  probably 
have  the  greatest  voice  in  the  settlement  of  peace 
terms  and  of  the  economic  conditions  which  are 
to  prevail  after  the  war  between  the  various  bel- 
ligerents; but  this  should  make  us  all  the  more 
careful  to  safeguard  the  interests  and  welfare  of 
those  of  our  Allies  who  have  made  every  possible 
sacrifice  equally  with  us  in  the  struggle  with  the 
enemy.  In  so  far  as  our  Allies  are  concerned,  if 
we  are  to  secure  that  future  peace,  co-operation  and 
harmony,  so  much  desired,  we  shall  have  to  practise 
what  we  preach.  If  we  desire  all  those  who  identify 
themselves,  or  come  in  contact  with  us,  to  absorb 
our  views  on  the  principles  of  Liberty,  Freedom 
and  Justice,  and  our  views  of  world  politics, 
whether  in  the  political  or  economic  domain,  and 
"  that  higher  justice  and  larger  freedom  which, 
rightly  or  wrongly,  we  associate  with  the  temper 
and  character  of  our  race  wherever  it  is  dominant 
and  secure,' '  we  must  see  to  it — and  it  is  our 
bounden  duty  to  do  so — that  everything  possible 
is  done  to  make  good  the  ravages  and  havoc  of 
war  in  the  countries  of  our  Allies;  that  the 
national  industries  that  have  been  destroyed  by 
the  enemy  are  restored;  and  that  we  shall  assist  in 


THE   PARIS   RECOMMENDATIONS    47 

diverting  as  much  as  we  can  of  our  trade  to  them 
formerly  transacted  by  us  with  Germany,  Austria, 
Bulgaria  and  Turkey.  Nor  should  we  forget 
Ireland  in  the  final  settlement. 

This  may,  of  course,  be  considered  a  selfish 
policy  by  neutrals,  but  our  answer  is  that  we  have 
to  liquidate  the  costs  of  the  war  forced  on  us  by 
Germany  and  Austria  in  the  defence  of  Liberty, 
Freedom  and  Justice,  whilst  they  have  been  hold- 
ing aloof  and  earning  large  profits  in  satisfying 
our  requirements;  and  in  so  far  as  our  enemies  are 
concerned  it  may  be  characterised  as  one  of  the 
consequences  and  penalties  of  war,  only  to  be 
modified,  or  rectified,  as  time  and  circumstances 
may  dictate.  In  pursuing  a  policy  such  as  we  now 
indicate  future  generations  will  then  come  to 
realise  that  war,  no  matter  what  seductive  attrac- 
tions, or  possibilities,  it  may  hold  out,  even  if 
successful,  does  not  pay. 

In  order  to  achieve  our  purpose,  therefore,  the 
Allied  Governments  should  respectively  adopt 
the  Science  of  National  Economics  based  on 
freedom  of  trade,  with  a  maximum  of  twenty 
per  cent,  ad  valorem  on  all  duties  imposed.  Each 
of  their  tariff  schedules  should  be  standardised, 
i.  e.  all  imports  duties  should  be  of  a  like  amount, 
and  Germany,  Austria,  Bulgaria  and  Turkey 
should  be  called  upon  to  pay  a  war  sur-tax  of 
fifteen  per  cent,  of  the  duties  specified  in  the 


48    NATIONAL  SYSTEM  OF  ECONOMICS 

schedules  which  ought,  with  the  short-dated  in- 
demnity we  may  impose  (which  should  take  pre- 
cedence of  all  enemy  internal  and  external  war 
loans),  and  the  redistribution  of  territory  pre- 
viously suggested,  to  satisfy  our  requirements  and 
check  any  dumping  programme  which  our  enemies 
may  be  inclined  to  indulge  in  after  the  war  is 
concluded. 

The  war  sur-tax  of  fifteen  per  cent,  would  not 
be  sufficiently  high  to  prevent  Germany  and  her 
allies,  or  what  is  left  of  them,  from  trading  with 
ourselves,  the  Dominions  and  Allied  countries, 
during  the  preliminary  reconstruction  period  of 
five  years  suggested.  But  it  would  be  their  con- 
tribution towards  the  larger  indemnity  which  we 
would  have  liked  to  impose,  but  which  on  tech- 
nical grounds  we  cannot  enforce.  It  would,  in 
fact,  be  repayment  on  the  deferred  payment  system. 

If  their  merchants  and  industries  are  able  to 
trade  with  us  on  those  terms,  well  then,  let  them 
trade — there  would  not  be  much  profit  left  to 
them  on  the  business  they  may  be  able  to  transact. 
The  course  of  action  suggested  would  not  disturb 
the  working  of  the  international  economic  machine, 
but  it  would  be  extremely  effective  in  accomplish- 
ing our  purpose. 

The  Allies  cannot  afford  to  adopt  a  high  pro- 
tective or  prohibition  policy  against  Germany  and 
her  allies;  but  if  they  wish  to  eliminate  their 


THE   PARIS   RECOMMENDATIONS    49 

dumping  power  the  only  thing  to  do  is  to  adopt 
the  plan  now  suggested. 

Of  course,  Germany  and  her  allies  may  attempt 
to  evade  direct  trade  with  the  Allies  in  order  to 
avoid  the  sur-tax;  but  should  she  trade  through 
neutrals  for  this  purpose,  then  the  neutral  coun- 
tries concerned  should  be  notified  that  all  exports 
from  such  countries,  whether  of  neutral  or  enemy 
origin,  will  be  subject  to  the  sur-tax.  This  method 
would  put  an  effective  check  on  any  evasion  that 
may  be  attempted  by  them. 

It  would  indeed  be  very  foolish,  and  derogatory 
to  our  prestige,  to  frame  our  future  national 
policy  upon  anything  but  our  national  interests. 
As  we  have  previously  stated,  the  most  effective 
way  of  dealing  with  Germany  and  her  allies  in  the 
economic  sphere  of  activity  is  to  adhere  to  sound 
economic  principles,  and  which  above  every  other 
consideration  should  be  consistent  with  sound 
Democratic  principles  and  Democratic  government. 

The  national  interests  demand  that  we  should 
safeguard  ourselves  against  exploitation  by  Ger- 
many as  in  the  past.  Let  us  make  the  British 
Empire  strong,  self-sufficient,  and  above  all  inde- 
pendent, and  we  can  look  forward  to  the  future 
with  every  confidence,  with  a  dignity  consistent 
with  our  past  history,  and  without  fear  or  hate. 

In  national  power  and  efficiency  in  the  eco- 
nomic domain,  as  well  as  in  the  military  domain, 

E 


50    NATIONAL  SYSTEM  OF  ECONOMICS 

we  have  the  secret  of  peace.  As  we  have  stated 
on  a  previous  occasion,  the  strength  of  the  nation 
in  the  affairs  of  nations  should  be  our  paramount 
consideration,  and  if  we  safeguard  ourselves  in  this 

'  D 

respect  we  need  not  fear  Germany's  future  eco- 
nomic policy,  nor  the  coming  competition  from 
the  United  States. 

"  When  a  strong  man  armed  keepeth  his  palace, 
his  goods  are  in  peace." 

It  would,  therefore,  be  economically  unsound 
for  reasons  stated  to  adopt  a  prohibition  or  high 
protective  policy  against  Germany,  Austria,  Bul- 
garia and  Turkey.  Would  it  be  wise  to  maintain 
the  world  in  an  economic  turmoil?  to  maintain 
conditions  which  could  do  nothing  but  create 
jealousies  and  maintain  hatred,  after  the  present 
horrible  war  is  over?  It  v/ould  surely  be  more 
expedient,  after  having  revised  our  pre-war 
national  and  imperial  economic  views,  to  revert 
to  economic  tranquillity  at  the  earliest  possible 
moment. 

A  wise  creditor  will  never  impose  conditions 
upon  his  debtor  of  a  nature  that  will  prevent  him 
meeting  his  liabilities  or  repaying  his  just  debts; 
similarly,  we  ought  not,  nor  can  we  afford  to, 
impose  such  conditions  as  will  prevent  Germany 
and  her  allies,  or  what  is  left  of  them,  taking 
their  place  again  in  the  economic  world;  always 
providing  that  in  the  terms  of  peace  to  be  con- 


THE   PARIS   RECOMMENDATIONS    51 

eluded  the  Entente  governments  are  assured  that 
proper  parliamentary  and  democratic  government 
will  be  enforced  in  enemy  countries  in  lieu  of  the 
present  form  of  autocratic  government  now 
prevailing.  And  further,  provided  that  those  who 
have  been  responsible  for  the  horrible  massacres 
and  murders  during  the  war  are  duly  decapitated, 
as  an  example  to  their  heirs  and  successors. 

With  regard  to  the  policy  which  ought  to  be 
pursued  by  us  in  the  event  of  democratic  govern- 
ment being  enforced  in  present  enemy  countries, 
we  would  say  that  we  should  make  no  change 
from  the  course  of  action  or  policy  herein  recom- 
mended. The  policy  suggested  is  based  on  sound 
economic  principles  and  not  on  any  purely  anti- 
German  sentiment.  If  in  course  of  time  Great 
Britain  and  her  Allies  were  satisfied,  after  a  trial 
period  of  five  years,  that  our  present  enemies  had 
developed  a  more  rational  and  democratic  frame 
of  mind,  all  that  they  require  to  do  is  to  abolish 
the  war  sur-tax  payable  on  import  duties.  In 
which  event  our  present  enemies  would  then  be  in 
as  favourable  a  position  as  present  neutrals. 

At  the  conclusion  of  the  period  of  the  five  years 
referred  to  above,  it  should  be  found  that  the  war 
sur-tax  of  15  per  cent,  on  all  German,  Austrian, 
Bulgarian  and  Turkish  exports  into  Allied  coun- 
tries, the  indemnity  to  be  imposed  and  the  terms 
of  its  liquidation,  together  with  the  redistribution 


52    NATIONAL  SYSTEM  OF  ECONOMICS 

of  enemy  territory,  would  be,  in  themselves,  suf- 
ficient to  destroy  any  aggressive  policy  which  they 
may  contemplate  within  that  period  or  later. 


ON    NEUTRAL    TRADE 

With  regard  to  the  measures  which  are  to  be 
framed  and  come  into  operation  for  the  period  of 
the  commercial,  industrial,  agricultural  and  mari- 
time reconstruction  of  the  Allied  countries  after 
the  war,  Article  I  of  the  Paris  Economic  Resolu- 
tions declares  the  common  determination  of  the 
Allied  Governments  to  ensure  the  re-establishment 
of  the  countries  suffering  from  acts  of  destruction, 
spoliation  and  unjust  requisition;  and,  as  a  corol- 
lary of  this,  they  decide  to  join  in  devising  means 
to  secure  the  restoration  to  those  countries,  as  a 
prior  claim,  of  their  raw  materials,  industrial  and 
agricultural  plant,  stock  and  mercantile  fleet,  or 
to  assist  them  to  re-equip  themselves  in  these 
respects. 

In  the  preceding  pages  we  have  dealt  with  the 
outlook  and  the  position  in  so  far  as  Germany 
is  concerned,  but  we  now  have  to  deal  with 
the  interests  of  neutrals  and  the  position  to  be 


THE   PARIS   RECOMMENDATIONS    53 

occupied  by  them  during  the  reconstruction 
period. 

The  first  impression  we  form  is  that  the  Allied 
and  Dominion  Governments  cannot  afford  to  adopt 
a  preferential  policy  between  themselves  as  against 
neutrals,  for  the  adoption  of  such  a  policy  would 
only  drive  neutral  trade  into  the  hands  of  Ger- 
many, and  vice  versa,  and  probably  would  create 
defensive  and  offensive  economic  treaties  or 
alliances  against  ourselves. 

As  a  sound  economic  proposition,  there  is  a 
good  deal  to  be  said  in  favour  of  this  argument, 
but  we  have  to  remember  that  the  industrial  plants 
in  the  Allied  countries  have  been  equipped  and 
are  now  utilised  for  the  purpose  of  manufacturing 
munitions  of  war,  so  urgently  required  in  the 
firing-line. 

When  normal  conditions  return  a  considerable 
period  of  time  will  elapse  before  these  plants  can 
be  changed  over  and  made  available  for  ordinary 
commercial  enterprise,  and  for  the  different  indus- 
trial organisations  to  get  into  proper  working  order 
again  in  the  solicitation  of  international  trade. 

Not  only  that,  but  it  should  be  remembered 
that  some  of  France's  most  prosperous  industries, 
notably  the  wool  industry  of  the  north  and  the 
metallurgical  in  the  east,  are  still  in  the  hands  of 
the  enemy,  and  will  no  doubt  be  destroyed  before 
the  Germans  evacuate  the  territory  occupied  by 


54    NATIONAL  SYSTEM  OF  ECONOMICS 

them.  Are  we  then  to  permit  Germany,  and  rich 
and  powerful  neutrals,  to  deal  a  mortal  blow  at 
the  national  industries  of  France  by  dumping  pro- 
cesses before  giving  her  time  to  rehabilitate  and 
re-establish  her  industries,  and  recover  her  financial 
equipoise  ? 

The  house  of  France  is  in  ruins,  so  that  with 
her  the  reconstruction  period  after  the  war  has  a 
more  literal  significance.  The  volume  of  French 
exports  has  fallen  during  the  war  in  a  most  striking 
manner,  due,  of  course,  to  the  mobilisation  of  her 
national  industries  for  the  manufacture  of  war 
material,  and  also  to  the  great  difficulties  which 
France  has  encountered  owing  to  the  want  of 
adequate  shipping  facilities.  But  where  would 
Great  Britain  and  her  other  Allies  have  been  to-day 
as  regards  the  war  but  for  this  early  decision  of 
France  to  sacrifice  her  export  trade  and  mobilise 
her  man  power  in  favour  of  winning  the  war  ?  Do 
we  and  our  Allies,  then,  not  owe  France  and  her 
brave  men  a  deep  debt  of  gratitude?  Are  we  to 
leave  them  to  fight  Germany  and  powerful  neutrals 
without  adequate  preparation  and  assistance? 

Neutral  countries  have  regarded  it  as  being 
more  profitable  to  themselves,  instead  of  participat- 
ing in  the  conflict,  to  supply  such  materials  as  we 
and  our  Allies  require,  not  at  fair  prices,  but  at 
prices  which  may  be  regarded  as  being  extraordi- 
narily lucrative,  and  have  by  this  means  con- 


THE   PARIS   RECOMMENDATIONS     55 

siderably  increased  the  external  debts  of  the  Allied 
Governments.  During  the  progress  of  the  war 
they  have  also  been  organising  their  industrial 
plants  and  adopting  other  economic  measures  for 
the  capture  of  as  much  of  the  international  trade 
of  the  belligerent  countries  as  they  can  as  soon  as 
the  war  concludes. 

If  we  take  these  considerations  into  account, 
and  also  the  fact,  already  referred  to  in  the  pre- 
vious chapter,  that  the  economic  policy  which  we 
are  now  committed  to  by  the  adoption  of  the  Paris 
Economic  Resolutions,  involves  a  considerable 
change  and  dislocation  in  the  character  of  the  im- 
port and  export  trade  formerly  transacted  by  the 
Allies,  which  will  be  obvious  to  those  who  study 
such  matters,  inasmuch  as  the  source  and  origina- 
tion of  our  previous  trade  will  for  the  most  part 
be  completely  altered,  it  will  necessarily  take  some 
considerable  time  before  our  respective  merchants 
and  manufacturers  can  settle  down  to  a  normal 
trading  policy. 

In  this  circumstance  it  would  seem  to  be  just, 
fair  and  equitable  that  the  Allied  Governments 
should  for  a  period  of  five  years,  dating  from  the 
conclusion  of  the  peace  treaty,  concede  to  each 
other  a  preference  of  33^  per  cent,  of  the  duties 
payable  as  set  forth  in  their  respective  tariff 
schedules;  it  being  definitely  understood  between 
the  Allied  Governments  and  neutrals  that  the 


56    NATIONAL  SYSTEM  OF  ECONOMICS 

preference  of  33^  per  cent,  which  they  may  deem 
to  be  advisable  to  concede  to  the  industries  of 
their  respective  countries,  shall  be  positively 
and  definitely  determined  at  the  end  of  the  five 
years. 

In  the  event  of  any  neutral  country,  during 
the  reconstruction  period  of  five  years  suggested, 
adopting  counter  or  retaliatory  measures  against 
the  Allied  Governments,  then  it  should  be  clearly 
intimated  to  such  neutral  power  that  the  war 
sur-tax  of  15  per  cent,  shall  be  placed  on  all  the 
imports  of  manufactures  from  their  country  for  so 
long  as  the  counter  or  retaliatory  measures  may 
exist. 

Neutrals  should  remember  that  the  industries  of 
Great  Britain  and  her  Allies  are  for  the  period  of 
the  war  organised  and  developed  for  warlike  pur- 
poses; whereas  the  industries  and  financial  power 
of  neutral  countries  have  been  organised  and 
developed  during  the  war  for  peaceful  purposes. 
Great  Britain  and  her  Allies,  therefore,  cannot 
allow  them,  particularly  in  view  of  the  enormous 
war  costs  they  are  now  incurring,  to  procure  or 
derive  any  advantage  over  their  respective  national 
industries  and  labour  in  view  of  the  circumstances 
mentioned. 

In  an  article  cabled  from  New  York  by  the 
financial  correspondent  of  the  Daily  Telegraph 
recently,  he  pointed  out  that  the  recommendations 


THE   PARIS   RECOMMENDATIONS    57 

of  the  London  Chamber  of  Commerce  for  a  system 
of  graduated  preferential  tariffs  as  between  Great 
Britain  and  her  Allies  after  the  war  were  being 
studied  with  the  keenest  interest  in  America,  and 
were  the  subject  of  criticism  almost  everywhere. 
Also  the  probability  that  the  system  of  free  trade 
— i.e.  Laissez  faire,  Laissez  passer — would  be 
abandoned  was  causing  much  concern  in  the  press 
and  leading  trade  circles,  and  that  the  editorial 
comment  on  the  proposed  post-war  trade  plans 
of  the  Allies  was  very  severe.  There  is  even  a 
hint  that  reprisals  will  be  adopted  by  the  United 
States  in  the  event  of  such  a  development. 

Now  the  only  sensible  course  to  pursue  in  view 
of  our  economic  position,  particulars  of  which  we 
have  already  mentioned,  is  to  pursue  our  own 
interests  in  our  own  way  irrespective  of  any  threats 
that  may  be  directed  against  ourselves,  or  our 
Allies,  by  neutrals. 

The  enormous  costs  of  the  war  will  have  to  be 
liquidated,  but  it  should  be  the  function  of  Govern- 
ment to  lighten  the  pressure  of  taxation  which  it 
will  be  necessary  to  impose  upon  our  people  for  this 
purpose  for  years  to  come.  If  this  policy  is  not 
pursued  by  our  Government  there  is  the  obvious 
danger  that  individuals  and  families,  particularly 
those  possessing  capital,  will  emigrate  in  order  to 
avoid  the  high  direct  taxation  that  will  necessarily 
prevail.  If  this  danger  is  to  be  avoided  it  will  be 


58    NATIONAL  SYSTEM  OF  ECONOMICS 

necessary  to  create  working  conditions  providing 
for  the  security  of  income  and  employment. 

We  have,  therefore,  our  own  national  interests 
to  safeguard  after  the  war  is  concluded,  and,  for  the 
reasons  stated,  we  cannot  afford  to  have  these 
sacrificed  in  favour  of  any  power,  neutral  or  other- 
wise, whose  financial  and  other  material  resources 
have  not  been  impaired  to  any  great  extent  as  a 
consequence  of  the  war;  and  all  comparisons  should 
be  made  with  the  pre-war  standard. 

It  should  be  the  duty  of  our  statesmen  to  point 
out  to  those  whom  it  may  concern  the  reasonable- 
ness of  this  attitude,  and  to  adhere  to  the  policy 
to  which  we  are  committed.  A  "  friend  in  need 
is  a  friend  indeed,"  and  it  is  our  manifest  duty  to 
be  loyal  to  those  who  have  stood  by  us  and  made 
every  possible  sacrifice  in  the  cause  of  liberty, 
freedom  and  justice.  It  is  only  by  pursuing  such 
a  policy  that  we  can  hope  to  continue  to  retain  the 
goodwill  and  confidence  of  our  Allies. 


CHAPTER  III 

THE   INFLATION   AND   MANIPULATION 
OF   PRICES,   AND   THE   CAUSE 

WILL    LONDON    BE    A    FREE    MARKET    FOR    GOLD 
AFTER    THE    WAR? 

As  we  have  previously  indicated,  the  develop- 
ment of  the  Foreign  Exchanges  between  nations 
are  in  many  cases  more  or  less  modified  in  the 
course  of  a  generation.  The  Exchange  will  have 
a  tendency  to  fluctuate  in  favour  of  those  nations 
whose  trading  is  conducted  on  the  most  intelligent 
lines.  In  this  circumstance,  and  in  view  of  the 
conditions  which  prevail,  it  is  essential  that  we 
should  study  the  question  as  to  whether  London 
will  be  able  to  continue  a  free  gold  market  after 
the  war. 

If  the  Bill  of  Exchange  on  London  is  to  remain 
as  in  pre-war  days,  the  international  currency  of 
the  world,  it  is  necessary  for  the  country  to  main- 
tain its  ability  to  supply  gold  whenever  it  is 
demanded. 

In  pre-war  days  it  is  well  known  that  the 
majority  of  the  foreign  banks  always  held  amongst 

59 


60    NATIONAL  SYSTEM  'OF  ECONOMICS 

their  liquid  assets  substantial  holdings  of  Bills  on 
London.  These  banks  preferred  to  do  this  be- 
cause they  could  always  rely  upon  Great  Britain 
paying  her  debts  in  gold,  and  in  view  of  this  con- 
fidence they  came  to  regard  their  Bills  of  Exchange 
on  London  as  representing  gold.  These  Bills 
were  preferred  to  gold  because  they  could  be 
handled  with  much  greater  facility;  they  were  pre- 
ferred to  gold  because  they  could  be  transferred 
with  greater  rapidity,  with  greater  certainty,  and 
with  infinitely  less  risk  than  would  be  involved  in 
the  shipping  of  gold. 

In  other  words,  the  Bills  of  Exchange  on 
London  were  regarded  as  being  the  most  efficient 
and  wholly  satisfactory  instruments  that  could  be 
devised  by  which  debts  between  the  various  coun- 
tries could  be  liquidated,  and  it  was  chiefly  owing 
to  this  fact  that  the  Rate  of  Exchange  on  London 
came  to  be  regarded,  par  excellence,  the  Inter- 
national Rate  of  Exchange. 

The  transactions  represented  by  Bills  of  Ex- 
change cover  the  import  and  export  of  goods, 
financial  and  commercial  operations  of  every  kind, 
stocks,  debentures,  and  remittances  of  money,  and 
many  other  items,  and  are  naturally  of  a  very  com- 
prehensive and  substantial  character;  and  in  view 
of  the  adverse  balance  of  trade,  i.  e.  excess  of 
imports  over  exports,  which  is  rising  up  against 
this  country,  it  is  necessary  that  our  manufacturers 


THE   MANIPULATION   OF  PRICES     61 

and  merchants  should  carefully  study  the  fluctua- 
tions of  the  Bill  of  Exchange  and  the  fluctuations 
in  the  Rate  of  Exchange,  that  excellent  barometer 
which  indicates  the  strength  of  the  country  in 
international  transactions.  The  whole  matter  has 
a  very  deep  bearing  upon  our  future  gold  position. 
Mr.  Oswald  Toynbee  Falk  has  a  very  interesting 
essay  on  this  subject  in  the  Nineteenth  Century 
for  July  1916,  based  upon  a  quotation  taken 
from  a  speech  made  by  Sir  Edward  Holden,  one 
of  our  most  eminent  bankers,  at  the  Annual 
General  Meeting  of  the  London,  City  &  Midland 
Bank,  January  28,  1916,  which,  in  our  view,  is 
very  important.  The  quotation  is  as  follows — 

"  London,  as  I  have  before  explained,  has  main- 
tained, and  will  continue  to  maintain,  the  position 
of  being  the  financial  centre  of  the  whole  world, 
but  it  can  only  retain  that  position  by  being  able 
to  supply  gold  when  gold  is  demanded.  The 
Bank  of  England  has  at  the  present  time  about 
50  millions  sterling  of  gold.  The  Government 
has  28-5-  millions,  and  the  Joint  Stock  Banks  have 
a  further  large  sum,  while  I  believe  there  is  yet  in 
hoarding  a  fair  amount,  and  we  are  fortunate  in 
having  a  continuous  flow  of  gold  from  South 
Africa.  If,  on  the  conclusion  of  this  war,  we  are 
still  a  free  market  for  gold,  we  shall  have  scored 
a  financial  triumph  as  important  to  the  country  as 
a  great  victory  in  arms." 


62    NATIONAL  SYSTEM  OF  ECONOMICS 

It  will  be  noted,  however,  that  Sir  Edward 
Holden  asserts  that  "  If,  on  the  conclusion  of  this 
war,  we  are  still  a  free  market  for  gold,  we  shall 
have  scored  a  financial  triumph."  We  agree  with 
Sir  Edward  Holden  that  it  would  be  a  most  admir- 
able performance  if  it  could  be  achieved,  but  even 
then  we  doubt  very  much  if  the  credit  would  be 
entirely  due  to  our  financial  methods  more  than 
to  our  sea  power.  In  our  view,  British  financial 
credit  is  based  largely,  if  not  entirely,  upon  British 
sea  power  credit,  and  if  the  latter  were  to  be 
destroyed  it  would  be  futile  to  discuss  whether 
London  would  be  a  free  market  for  gold  after  the 
war. 

Similarly,  the  comparative  merits  or  demerits 
of  British  and  German  methods  of  finance  are 
based  very  much  upon  the  same  principle,  for  in 
order  to  obtain  a  true  result,  and  appreciate  the  full 
significance  of  the  strength  of  our  sea  power,  our 
consequent  ability  to  export  and  import  in  war 
time  must  be  brought  into  perspective;  and  this 
aspect  of  the  question  is  generally  overlooked  in 
discussions  of  this  sort. 

In  order  to  prove  the  truth  of  this  proposition 
we  need  only  refer  to  that  part  of  Sir  Edward 
Holden's  speech  which  states  "  we  are  fortunate  in 
having  a  continuous  flow  of  gold  from  South 
Africa."  It  is  quite  clear  from  this  that  British 
sea  power  alone  continues  to  ensure  it,  and  if  this 


THE   MANIPULATION   OF  PRICES     63 

is  borne  in  mind  it  will  perhaps  prevent  the  raising 
of  false  issues. 

Notwithstanding  the  fact,  however,  that  British 
sea  power  gives  us  a  predominant  advantage  in 
the  present  world's  conflict,  there  will  be  many 
financial  difficulties  we  shall  have  to  face  after  the 
war  in  view  of  the  very  large  adverse  balance  of 
trade  which  now  exists  and  which  has  at  present 
to  be  offset  mainly  by  the  export  of  gold  and 
our  available  foreign  securities.  But  this  policy, 
obviously,  cannot  be  continued  indefinitely. 

The  situation  which  now  exists  may  seriously 
affect  our  position  as  a  free  gold  market  after  the 
war,  inasmuch  as  our  ability  to  correct  any  adverse 
balance  of  trade  will,  in  future,  mainly  depend 
upon  our  ability  to  export  manufactured  articles 
of  utility  in  large  quantities  at  keen  competitive 
prices.  We  agree  with  Mr.  Falk  that  it  would 
be  manifestly  wrong  to  postpone  the  consideration 
of  the  question  until  the  war  is  over,  inasmuch  as 
we  believe  it  to  be  one  of  the  considerations  which 
arise  out  of  the  Paris  Economic  Resolutions;  it 
should,  therefore,  be  considered  at  once. 

It  may  be  our  present  business  to  win  the  war, 
but  what  possible  advantage  would  it  be  to  us  to 
win  a  victory  in  the  military  sense,  if,  by  the 
maintenance  of  Laissez  faire,  we  proceed  to  lose 
the  fruits  of  victory  in  the  severe  international 
industrial  competition  which  will  certainly  ensue 


64    NATIONAL  SYSTEM  OF  ECONOMICS 

after  the  victory,  which  we  hope  for,  is  obtained; 
or,  if  we  proceed  by  the  same  methods  to  lose  the 
victory  by  exporting  the  nation's  capital  abroad 
to  pay  for  manufactures,  food  and  food  products, 
which  could,  with  a  little  energy,  for  the  most  part 
be  produced  in  the  United  Kingdom  from  existing 
resources  even  during  the  war. 

It  has  been  said  that  a  great  crisis  invariably 
arises  when  least  expected;  but  if  the  mind  of  the 
public  is  concentrated  upon  the  dangers  which 
create  a  crisis  they  may  very  often  be  avoided. 
If,  therefore,  we  accept  this  as  a  practical  proposi- 
tion it  seems  to  us  to  be  desirable  that  we  should 
at  the  present  time,  if  only  for  the  purpose  of 
protecting  the  homes  and  businesses  of  those  men 
who  have  gone  to  the  front,  immediately  adopt 
such  precautionary  measures  as  may  be  essential 
and  necessary  to  safeguard  our  future  industrial 
prosperity. 

Mr.  Falk  assumes  that  the  monetary  units  or 
their  paper  equivalents,  in  Germany,  Russia,  France, 
and  Great  Britain,  have  depreciated  in  terms  of 
gold  and  also  in  terms  of  commodities.  We  think 
he  is  correct  in  his  first  proposition  but  not  in  the 
second,  inasmuch  as  the  rise  in  prices  is  not  en- 
tirely due  to  the  depreciation  of  internal  currency 
in  terms  of  gold,  but  to  the  freer  circulation  of 
credit — artificial,  we  admit — and  to  the  monopo- 
listic trading  conditions  which  exist  during  war  time. 


THE  MANIPULATION  OF  PRICES     65 

In  support  of  this  view  it  will  be  found  that  at 
the  conclusion  of  three  years  after  peace  is  declared 
the  price  of  manufactured  utilities  and  commodities 
will  be  on  a  lower  basis  than  those  which  existed 
in  1914  before  war  was  declared,  i.  e.  whereas  the 
purchasing  value  of  the  sovereign,  or  its  paper 
equivalent,  is  now  claimed  to  be  equal  to  the  value 
of  twelve  shillings  as  compared  with  pre-war 
values,  in  three  to  five  years  after  the  declaration 
of  peace  we  firmly  believe  that  the  value  of  the 
sovereign,  or  its  paper  equivalent,  will  be  worth 
about  twenty-eight  shillings,  always  assuming,  of 
course,  that  we  do  not  go  bankrupt  and  that  the 
paper  currency  continues  to  exist. 

The  freer  circulation  of  credit  to  which  we  refer 
and  which  is  represented  by  the  inflated  paper 
currency  is  reflected  in  the  great  expansion  of  bank- 
ing credits,  i.  e.  deposits,  which  now  exist,  as  will 
be  seen  in  the  following  comparative  table  of  the 
London,  City  &  Midland  Bank- 
Deposits,  June  1914  .  ..  .  £  95,027,000 

„         December  1914  .  .  124,732,000 

„        June  1915      .  .  .  142,388,000 

„        December  1915  .  .  147,750,000 

June  1915     .      .  4  A  I57,539»256 

From  the  foregoing  remarks  it  will  be  clear  that 
British  bankers  will  require  to  be  exceedingly 
careful  with  their  credits  so  soon  as  the  present 
high  level  of  artificial  prices  and  wages  begin  their 
course  of  liquidation,  as  the  liquidation  will  imme- 


66    NATIONAL  SYSTEM  OF  ECONOMICS 

diately  begin  to  make  its  influence  felt  in  the 
volume  of  deposits  held. 

The  present  great  rise  in  prices,  in  our  view, 
is  not  entirely  due  to  the  great  inflation  of  the 
circulating  media,  but  is  largely,  if  not  mainly, 
attributable  to  the  monopolistic  conditions  which 
prevail  and  the  excellent  market  which  the  inflation 
of  the  circulating  media  creates  for  manipulation. 

The  National  System  of  Economics  based  on 
freedom  of  trade  is  designed  for  defensive  and 
offensive  purposes  either  in  the  arts  of  peace  or 
war;  and  both  are  inseparable.  We  organise  our 
national  forces  in  peace  for  war;  and  as  a  corollary 
of  this  we  should  organise  in  war  for  the  de- 
velopment of  the  arts  of  peace;  and  the  truth  of 
this  proposition  has  been  effectively  demonstrated 
during  the  present  war.  When  a  nation  is  in  a 
state  of  war,  particularly  on  the  scale  in  which  it 
is  involved  at  present,  there  can  be  no  freedom,  in 
the  sense  in  which  it  is  understood  in  times  of 
peace,  to  any  individual  or  corporate  body.  All 
labour  power,  financial  and  other  material  resources, 
must  be  controlled,  developed,  and  guided  along 
lines  that  will  ensure  victory. 

What  the  Government  should  do  is  to  introduce 
legislation  to  the  effect  that  no  firm  or  other  cor- 
porate body  1  shall  be  allowed  to  pay  larger  divi- 

1  For  the  general  purpose  of  the  scheme  an  individual 
who  trades  for  profit  should  be  classified  as  a  firm. 


THE   MANIPULATION   OF  PRICES     67 

dends  upon  any  form  of  share  capital  than  it  paid 
for  the  financial  year  1913-14,  with  the  exception 
that  any  firm  or  corporate  body  which  did  not 
pay  ten  per  cent,  in  dividends  upon  its  ordinary 
share  capital  to  its  shareholders  in  pre-war  days, 
should  be  allowed  to  distribute  dividends  not 
greater  than  ten  per  cent,  during  the  term  of  the 
war  period.  And  that  all  surplus  profits  available 
for  further  dividends  beyond  the  amounts  specified 
and  allowable  by  law,  subject  to  the  usual  or  cus- 
tomary provision  for  reserves,  should  be  made 
payable  to  the  Treasury. 

If  such  a  measure  as  we  propose  was  to  receive 
the  assent  of  Parliament,  we  do  not  think  that  the 
present  high  level  of  prices  would  have  been  pos- 
sible; it  is  by  far  the  most  effective  measure  that 
could  be  employed  for  checking  the  rising  ten- 
dency or  manipulation  of  prices;  and  the  proposi- 
tion is  suported  by  Adam  Smith's  dictum  that 
"  Defence  is  of  more  importance  than  opulence." 

If  the  foregoing  regulation  could  be  made  law 
by  the  Government  it  would  have  the  following 
effect— 

(1)  It    would    check    the    rising    tendency    or 
manipulation  of  prices  in  a  market  sensitive  to 
manipulation  or  panic. 

(2)  It  would  check  the  demand  by  organised 
labour  for  increases  of  wages,  and  in  many  cases 
it  would  be  possible  for  reductions  to  be  made. 


68    NATIONAL  SYSTEM  OF  ECONOMICS 

(3)  It  would  increase  the  sums  of  money  pay- 
able to  the  Treasury  under  the  heading  of  Excess 
Profits   by   at  least   fifty   per   cent.;    or,   in   the 
alternative, 

(4)  Drive  public  savings  and   other  available 
capital  into  Government  War  Loans  and  Treasury 
Bills. 

(5)  It    would    increase    the    capital    values    of 
existing    Government,    Municipal,    Colonial    and 
other  prior  lien  securities  by  reason  of  the  fact 
that 

(6)  It    would    decrease    the    rates    of    interest 
payable   on    Government   War  Loans  and   other 
Treasury  Securities. 

(7)  And  it  would  avoid  the  disturbing  market 
conditions   which  will   be   inevitable  at   the  con- 
clusion of  peace,  in  consequence  of   the  present 
high  level  of  prices  and  wages  beginning  their 
course  of  liquidation. 

Laissez  faire  in  a  state  of  war  creates  more 
effective  monopolies  than  any  system  that  could 
be  devised  under  National  Economics.  In  con- 
firmation of  this  proposition  we  need  only  direct 
attention  to  the  high  profits  made  by  the  ship- 
owners, coal-owners,  and  the  merchants,  who  are 
allowed  perfect  freedom  to  demand  what  they 
please.  On  the  other  hand,  compare  the  present 
rates  of  railway  transportation  and  the  cost  of  pro- 
ducing shells,  both  of  which  are  regulated  by  the 
state,  and  what  do  we  find?  In  the  former,  any 


THE   MANIPULATION   OF  PRICES     69 

higher  cost  of  transportation  is  merely  represented 
by  the  higher  level  of  wages  demanded  by  labour, 
but  no  extra  war  profits  are  secured  by  the  rail- 
way companies;  and  the  cost  of  producing  shells 
is  lower  than  pre-war  rates,  due,  no  doubt,  to  the 
larger  volume  produced;  but  to  whatever  cause  it 
may  be  attributed,  the  benefit  is  secured  by  the 
State. 

Our  Cabinet  Ministers  have  entirely  thrown 
away  the  advantage  which  we  ought  to  have 
derived  from  our  control  of  British  sea-power 
credit.  They  have  allowed  prices  to  rise  to  an 
abnormal  level,  and,  as  a  corollary,  rates  of  interest 
on  loans  to  rise,  resulting  in  a  depreciation  of  all 
pre-war  investment  securities,  with  a  correspond- 
ing loss  of  credit  in  neutral  countries. 

Ministers  may  claim,  of  course,  that  they  are 
getting  the  excess  profit  and  income  tax  of  eighty 
per  cent,  on  surplus  profits,  but,  like  the  ostrich, 
they  are  burying  their  heads  in  the  sand.  There 
will  be  no  excess  profits  to  obtain  after  the  war, 
and  the  whole  burden  will  suddenly  have  to  be 
borne  by  the  direct  tax.  Meanwhile,  in  pursuing 
their  present  course  of  action  Ministers  are  throw- 
ing away  the  credit  values  represented  by  our 
foreign  investments  which  would,  and  should, 
partly  bear  the  future  burden. 

The  present  monopolistic  conditions  which  exist 
have  made  every  one  greedy.  Labour  has  become 


70    NATIONAL  SYSTEM  OF  ECONOMICS 

envious  of  the  capitalist  and  has  demanded  a 
share  of  the  plunder  through  the  medium  of  high 
wages.  The  ship-owners,  coal-owners,  merchants, 
etc.,  have  all  increased  their  prices  still  further  and 
passed  the  extra  expenditure  involved  on  to  the 
public.  In  other  words,  we  have  got  into  what  is 
commonly  known  as  the  "  vicious  circle."  In 
view  of  the  foregoing,  therefore,  it  would  not  be 
correct  to  assume  that  the  monetary  unit  has  depre- 
ciated in  terms  of  commodities  in  consequence  of 
the  expansion  of  the  circulating  media;  but  that  it 
is  mainly  due  to  the  monopolistic  conditions  which 
are  created  by  the  maintenance  of  Laissez  faire  in 
a  state  of  war,  whilst  holding  the  advantage  of 
sea-power  credit. 

The  placing  of  limitations  on  prices  will  not 
stop  the  inflation  of  prices  as  effectively  as  the 
method  we  have  just  indicated.  There  is  a  great 
difference  between  the  Government  governing  by 
Laws  and  Regulations,  and  the  Government 
governing  by  interference  with  trade.  In  pro- 
ceeding by  the  latter  method  they  tend  to  create 
a  panic  in  the  market  of  the  commodity  which  it 
is  proposed  to  control,  inasmuch  as  they  imply 
that  there  is  a  shortage  in  the  commodity,  thereby 
causing  a  rise  in  prices  in  neutral  markets,  as,  for 
instance,  in  the  case  of  sugar  and  cheese,  the  supply 
of  which  commodities  they  have  already  attempted 
to  control,  with  results  contrary  to  those  that  were 


THE  MANIPULATION   OF  PRICES     71 

anticipated;  although  available  supplies  have  con- 
siderably augmented  in  this  country. 

We  strongly  believe  in  the  voluntary  effort,  i.  e. 
individual  freedom  of  trade,  but  only  on  the 
basis  that  the  State  shall  pass  Laws  and  Regulations 
to  the  effect  that  no  individual  or  corporate  body 
shall,  whilst  the  nation  is  in  a  state  of  war,  be 
allowed  to  declare  larger  dividends  than  those  we 
have  suggested.  In  other  words,  the  secret  of  the 
problem  lies  in  placing  a  definite  limit  on  specu- 
lative values. 

If  those  who  support  the  doctrine  of  Laissez 
faire  refuse  to  admit  this  proposition,  then  they 
are  in  practice  greater  protectionists  than  those 
who  advocate  National  Economics  in  times  of 
peace.  Inasmuch  as  by  allowing  freedom  to  indi- 
viduals and  corporate  bodies  to  manipulate  prices 
in  the  monopolistic  conditions  which  must  neces- 
sarily exist  whilst  the  nation  is  in  a  state  of 
war,  they  permit  of  one  of  the  greatest  crimes 
imaginable  against  those  members  of  the  State 
whose  persons  are  conscripted  for  military  and 
naval  services,  and  against  those  other  persons 
who  are  unable  to  defend  themselves  against  the 
manipulation. 

When,  however,  we  come  to  consider  the  value 
of  the  circulating  media  or  monetary  unit  in  inter- 
national transactions  a  different  state  of  affairs 
exists.  Most  of  the  Neutral  Exchanges  are  against 


72    NATIONAL  SYSTEM  'OF  ECONOMICS 

us,  and  were  it  not  for  the  very  large  volume  of 
foreign  securities  and  gold  reserves  which  we 
hold,  and  which  we  are  sending  abroad  to  pay  for 
food  and  other  necessary  war  materials,  not  only 
for  ourselves  but  for  our  Allies,  the  Exchange 
value  of  the  sovereign  would  certainly  have 
depreciated  to  a  much  greater  extent  than  it  has. 

We  have  also  had  to  create  very  large  credits  in 
America  for  the  purpose  of  paying  for  our  neces- 
sary requirements;  but  after  the  war  is  concluded 
can  we  continue  to  pursue  this  method  of  correct- 
ing any  adverse  balance  of  trade  or  in  redeeming 
the  external  debt  and  paying  the  interest  charges? 
On  the  other  hand,  by  what  means  can  we  hope 
to  continue  to  maintain  the  value  of  the  sovereign, 
or  its  paper  equivalent,  in  international  transac- 
tions? We  can  only  achieve  what  is  desired  by 
the  entire  nation  concentrating  upon  the  produc- 
tion of  manufactured  utilities  and  in  exporting 
them  in  large  quantities  abroad  at  the  keen  com- 
petitive prices  which  will  then  undoubtedly  exist. 
In  other  words,  we  must  cultivate  and  develop  the 
foreign  market,  and  also  make  effective  the  Paris 
Economic  Resolutions.  But  it  should  be  borne 
in  mind  that  although  this  development  is  a  neces- 
sity from  our  point  of  view,  it  will  also  be  a 
necessary  development  on  the  part  of  other 
belligerent  nations. 

This  aspect  of  the  question  is  foreseen  by  Mr. 


THE   MANIPULATION   OF  PRICES     73 

F.  A.  Vanderlip,  President  of  the  National  City 
Bank  of  New  York,  who,  in  an  address  to  the 
Third  National  Foreign  Trade  Convention,  1916, 
made  the  following  statement — 

"  When  the  war  is  ended  we  will  find  all 
Europe  depleted  of  its  gold,  staggering  under  a 
weight  of  inflated  Bank  and  Government  paper, 
and  under  the  direct  stress  to  rebuild  its  stock  of 
gold.  The  point  of  attack  will  be  our  gold 
reserve.  The  methods  will  be  every  means  known 
to  trade  and  commerce  by  which  merchandise, 
securities,  and  credits  can  be  exchanged  for  gold. 
The  laws  of  political  economy  will  be  on  the  side 
of  the  attack.  A  plethora  of  gold,  such  as  we  will 
have,  always  means  rising  prices.  We  will  estab- 
lish a  price  basis  here  which  will  make  us  a  good 
market  to  sell  in  and  a  bad  market  to  buy  in.  We 
are  now  advancing  our  labour  costs,  and  that  and 
every  other  element  that  enters  into  production 
will,  under  the  influence  of  this  great  increase  in 
our  gold  reserves,  tend  toward  high  market 
values." 

All  of  which  is  excellent  teaching,  and  confirms 
the  point  of  view  we  seek  to  establish. 

The  great  difficulty  which  has  to  be  overcome, 
however,  before  we  can  arrive  at  the  position  fore- 
shadowed by  Mr.  Vanderlip  is  the  present  high 
level  of  wages  and  prices  which  prevail,  and  which 
has  been  brought  about  by  the  circumstances 
already  indicated. 


74    NATIONAL  SYSTEM  OF  ECONOMICS 

This  peculiar  position  is,  however,  one  that  is 
present  to  all  the  belligerent  nations  and  neutrals 
to  a  greater  or  lesser  degree,  the  difference  being 
that  powerful  neutrals  occupy  an  advantageous 
position  inasmuch  as  their  resources  are  organised 
for  peaceful  purposes,  whereas  the  belligerent 
powers  will  have  to  put  their  industrial  plants 
through  a  process  of  re-organisation  on  the  declara- 
tion of  peace,  to  enable  them  to  resume  their 
former  position  in  the  international  markets  of  the 
world.  This,  of  course,  we  have  already  fore- 
shadowed and  discussed. 

Mr.  Falk,  in  his  admirable  essay,  however,  raises 
a  very  serious  point  in  this  connection  which  will 
require  very  careful  consideration.  He  points  out 
that  "  in  the  first  place  falling  prices  discourage 
enterprise,  and  that  no  manufacturer  will  make 
goods  for  a  falling  market  unless  he  can  see  his 
way  to  compensate  himself  by  a  reduction  of  costs, 
and  this  is  just  what  he  cannot  do  in  nine  cases  out 
of  ten  because — 

(1)  He  generally  buys  before  he  sells. 

(2)  Wages  rarely  fall  as  quickly  as  prices. 

(3)  The   initial   stages,  of  a   period   of   falling 
prices   usually   synchronise  with   a   restriction  of 
credit  and  high  rates  of  interest  for  loans." 

"  Trade  depression  and  unemployment  will  not 
be  a  desirable  state  of  affairs  when  the  country 


THE   MANIPULATION   OF  PRICES     75 

will  really  need  to  produce  as  much  as  it  possibly 
can,  and  when  it  will  be  facing  the  problem  of 
employing  a  disbanded  army.  The  price  demanded 
for  the  maintenance  of  a  free  gold  market  will  be 
no  light  one,  and  the  greater  the  degree  of  inflation 
when  peace  comes,  the  greater  will  be  the  diffi- 
culties. Suspension  would  be  a  great  disaster,  but 
it  may  ultimately  prove  to  be  the  smaller  of  two 
alternative  evils;  in  fact,  we  may  even  find  that  we 
are  left  with  no  alternative  at  all." 

From  the  foregoing  it  will  be  seen  that  if  the 
country  is  to  be  placed  in  the  position  of  being 
able  to  compete  successfully  in  the  international 
markets  of  the  world  for  such  business  as  may 
be  offered,  those  who  control  organised  labour 
should  be  made  to  clearly  understand  their  duties 
and  responsibilities,  as  otherwise  there  is  a  danger 
that  London  will  have  to  suspend  specie  payments 
for  a  short  period  of  time  involving  the  country 
in  a  corresponding  loss  of  credit.  It  is  to  be  hoped 
that  the  leaders  of  organised  labour  may  be  brought 
to  realise  in  time  that  it  would  not  do  to  prejudice 
the  Bill  of  Exchange  on  London,  an  instrument 
that  has  come  to  be  regarded  as  the  international 
currency  of  the  world;  and  if  the  war  has  taught 
us  anything,  it  is  that  finance  and  industry  are 
inseparable :  one  is  a  prop  for  the  other. 

If  the  leaders  of  organised  labour  and  of  our 
great  industries  would  only  come  together  and 


76    NATIONAL  SYSTEM  OF  ECONOMICS 

discuss  a  new  basis  of  wages  and  employment  to 
be  brought  into  operation  at  the  conclusion  of  the 
war,  under  a  definite  economic  system,  many 
of  the  problems  which  now  seem  insurmountable 
would  disappear.  But  this  may  be  considered  by 
some  to  be  a  platitude  which  has  often  been  dis- 
cussed during  the  war  by  many  writers  and  sym- 
pathisers, and  that  notwithstanding  the  frequent 
references  that  have  been  made  to  the  subject  it 
still  remains  more  of  a  general  proposition  than  a 
particular  one. 

Anticipating  this  attitude,  we  have  undertaken 
the  task  of  examining  the  problem  in  the  particular 
in  the  following  essay,  and  hope  that  it  may  serve 
as  a  useful  basis  for  discussion,  and  clear  the  way 
for  a  broad  understanding  of  the  difficulties  which 
have  to  be  met  by  both  parties. 


CHAPTER   IV 

ON   THE   CO-OPERATION   OF   LABOUR 
IN   PRODUCTION   AND   POLITICS 

FREDERICK  NAUMANN,  in  his  book  on  Central 
Europe,  asserts  that  "it  is  only  in  war  time  that 
our  mood  enables  us  to  entertain  broadly  trans- 
forming thoughts  of  reconstruction,"  which,  judg- 
ing from  history  and  experience,  is  unfortunately 
very  largely  true;  but  it  may  also  be  very  largely 
due  to  the  fact  that  the  momentum  of  the  eco- 
nomic machine  has  to  be  arrested  and  held  in  check 
in  favour  of  military  and  naval  necessities,  giving 
us  the  opportunity  to  survey  our  economic  and 
political  activities  in  perspective,  making  such 
corrections  or  alterations  as  may  be  necessary  to 
ensure  a  smoother  and  more  efficient  drift  forward 
to  that  higher  plane  of  life  to  which  the  world, 
speaking  generally,  is  advancing. 

Such  an  opportunity  now  presents  itself,  and  it 
appears  to  us  to  be  very  desirable  that  we  should 
strengthen  the  weak  links  in  our  economic  chain 
and  bonds  of  Empire,  in  order  that  we  may  resume 
our  industrial  activities  and  general  prosperity 

77 


78    NATIONAL  SYSTEM  OF  ECONOMICS 

with  greater  vigour,  vitality,  and  general  all-round 
co-operation  than  we  have  been  accustomed  to  do 
hitherto.  But  it  is  nevertheless  sad  to  reflect 
that  it  requires  a  war  to  enable  "  our  mood  to 
entertain  broadly  transforming  thoughts  of  recon- 
struction." It  is,  perhaps,  the  spirit  of  self- 
sacrifice  which  the  opportunity  of  war  provides 
which  forces  us  all  to  recognise  that  we  are  in 
reality  all  of  the  same  flesh  and  blood  and  are  but 
human. 

The  most  important  consideration  arising  out 
of  the  Paris  Economic  Resolutions  which  now 
remains  to  be  dealt  with  is  the  attitude  which 
organised  labour  will  adopt  towards  them,  and 
the  assistance  we  may  hope  to  receive  from  it,  in 
making  the  Resolutions  workable  and  effective. 

We  think  it  is  now  generally  recognised  that 
without  the  co-operation  of  labour  in  production 
and  politics  all  efforts  that  may  be  made  towards 
making  the  Resolutions  workable  and  effective 
would  subsequently  prove  to  be  abortive. 

As  we  have  remarked  on  more  than  one  occa- 
sion, the  war  has  enabled  the  vast  majority  of  our 
people  to  realise  that  our  pre-war  political  and 
economic  views  were  very  unsound,  and  this 
remark  applies  equally  to  the  views  held  by  the 
leaders  of  the  Trade  Union  movement  and  their 
adherents;  and,  to  give  them  credit,  they  do  in  the 
main  recognise  the  faults  and  weaknesses  of  some 


THE   CO-OPERATION   OF   LABOUR     79 

of  the  views  which  they  hold,  the  most  of  which 
have  been  inherited  from  Carl  Marx. 

Notwithstanding  the  all-round  progress  that  has 
been  made  towards  a  more  rational  and  national 
mode  of  thought,  it  is  still  necessary  to  study  the 
various  modes  of  thought,  or  the  theories  of  the 
Economic  School,  which  were  responsible  for  the 
position  and  views  held  by  organised  labour  in 
this  country  prior  to  the  war,  and  which  many  of 
its  adherents  are  still  inclined  to  support;  the  shock 
of  war  has  upset  many  of  the  Marxian  theories 
held  by  organised  labour,  and  consequently  there 
is  considerable  doubt  and  confusion  of  thought 
on  subjects  economic  within  its  ranks;  but  no  one 
should  be  surprised  at  this,  considering  that  Carl 
Marx  himself  was  hopelessly  wrong  in  his  first 
principles  and  in  many  of  his  definitions,  even 
viewed  from  the  standpoint  of  organised  labour. 

If,  therefore,  we  can  demonstrate  certain  of  the 
Marxian  theories  to  be  wrong  in  respect  to  eco- 
nomic science  generally,  and  in  a  fair  and  impartial 
manner,  it  would,  we  believe,  carry  forward  still 
further  the  movement  which  we  inaugurated  six 
years  ago  towards  securing  that  closer  co-operation 
so  earnestly  desired,  both  in  production  and 
politics,  as  between  management,  organised  labour, 
and  the  owners  of  capital,  i.e.  credit. 

As  the  basis  of  all  human  existence  is  the  earning 
of  a  living,  an  examination  of  the  problems  con- 


8o    NATIONAL  SYSTEM  OF  ECONOMICS 

fronting  us  could  not  be  complete  which  did  not 
attempt  to  survey  the  working  conditions  in  which 
labour  operates  in  production;  and  also  the  legiti- 
mate aspirations  which,  as  a  body,  it  endeavours 
to  make  effective  through  politics. 

Many  thoughtful  minds  are  turning  their  atten- 
tion to  this  most  interesting  of  present-day  prob- 
lems. Before  the  declaration  of  war  a  great  many 
people  were  much  concerned  at  the  bitter  and 
intensified  feeling  which  frequently  manifested 
itself  in  various  ways  between  the  forces  of  labour 
and  those  responsible  for  the  management  of 
industry. 

It  has  always  occurred  to  us  that  a  great  deal 
of  the  misunderstanding  has  arisen  through  labour 
itself  confusing  management  with  capital.  Even 
to-day  it  is  frequently  stated  by  leaders  of  labour 
that  after  the  war  the  battle  between  capital  and 
labour  must  be  renewed  with  more  intensity  than 
hitherto,  whereas  if  the  gentlemen  who  used  such 
expressions  would  but  stop  to  think  they  would 
surely  realise  that  capital  is  but  an  instrument  of 
credit;  and  that  as  such  labour  can  no  more  afford 
to  fight  it  than  do  without  its  daily  bread.  Credit 
is  fluid  in  character  and  can  in  consequence  easily 
transfer  itself  to  other  spheres  of  activity  where 
greater  security  and  harmony  prevails. 

After  the  war  is  over  there  will  be  many  prob- 
lems that  will  arise  for  solution  which  labour  and 


THE   CO-OPERATION   OF   LABOUR     81 

those  responsible  for  the  management  of  industry 
will  have  to  solve  together.  And  if  they  are  to 
secure  the  confidence  of  capital,  i.  e.  credit,  a  more 
co-operative  feeling,  or  a  willingness  to  co-operate 
together,  must  be  manifested.  From  every  point 
of  view  such  a  policy  is  desirable  in  order  that  the 
future  welfare  of  both,  and,  ipso  facto,  the  indus- 
tries of  the  country,  may  be  safeguarded  and 
developed  to  their  utmost  efficiency. 

Much  of  the  misunderstanding  that  has  arisen 
in  this  country  has  been  due  to  the  policy  of 
Laissez  faire  and  Laissez  passer  which  dominates 
our  national  business  policy,  and  also  to  an  un- 
willingness on  the  part  of  the  forces  engaged  in 
industry  to  see  the  point  of  view  or  understand 
the  mode  of  thought,  which  govern  the  actions  of. 
either  side. 

If  a  proper  understanding  is  to  be  achieved  it 
would  seem  desirable  that  a  disposition,  or  a  wil- 
lingness, should  be  shown  by  each  side  to  place 
itself  in  the  position  of  the  other.  If  we  have  no 
immediate  experience  of  what  other  men  feel  we 
can  form  no  idea  of  the  manner  in  which  they  are 
affected,  nor  conceive  what  we  ourselves  should 
feel  in  a  like  situation.  It  is  only  by  studying  the 
point  of  view  of  others  that  we  come  to  appreciate 
the  feelings  which  dominate  their  everyday  life. 

The  majority  of  people  appreciate  only  too  well 
the  wretched  atmosphere  in  which  many  of  the 


82    NATIONAL  SYSTEM  OF  ECONOMICS 

labouring  classes  dwell.  But  it  must  not  be  as- 
sumed that  they  do  not  sympathise  with  the  situa- 
tion, or  that  they  are  indisposed  to  assist  in  any 
remedial  measures  that  may  be  conceived  to  remedy 
and  brighten  the  existence  of  such  people. 

Any  apparent  want  of  sympathy  which  may  seem 
to  exist  is  superficial.  Such  want  of  action  as  may 
exist  is  mainly  attributable  to  the  conflicts  which 
have  frequently  manifested  themselves  hitherto 
between  classes  and  masses  engineered  by  political 
demagogues  for  vote-catching  purposes.  And  the 
absence  of  co-operation  or  co-ordination  between 
the  forces  of  labour  and  those  responsible  for  the 
management  of  industry  afford  these  same  poli- 
ticians a  rich  field  of  opportunity  for  the  practice 
of  their  arts. 


A  QUESTION  OF  MORAL  SENTIMENT 

To  those  who  give  careful  thought  and  study 
to  this  most  interesting  of  all  problems  it  is  quite 
apparent  that  there  is  in  reality  no  practical  diffi- 
culty which  can  bar  the  way  to  that  co-operation 
between  labour  and  management  which  all  desire. 
The  whole  problem  is  reduced  to  one  of  moral 
sentiment.  The  motive  which  inspires  the  ma- 


THE   CO-OPERATION   OF   LABOUR     83 

jority  of  the  leaders  of  labour  is  one  of  sympathy 
and  charity  for  their  fellow- workers.  These  men, 
more  than  most  people,  realise  to  the  full  the  sordid 
and  miserable  conditions  in  which  the  majority  of 
the  workers  live.  Some  may  say,  of  course,  that 
it  is  largely  a  question  of  environment,  but  grant- 
ing all  this,  is  it  not  desirable  that  we  should 
endeavour  to  brighten  it  in  some  measure,  and  so 
help  to  vitalise  the  minds  of  the  workpeople  to 
appreciate  the  advantages  of  improved  environ- 
ment and  the  beauties  of  art  and  of  nature? 

If  we  do  not  manifest  any  fellow-feeling  for  the 
conditions  in  which  they  live,  or  none  that  bears 
any  proportion  to  the  morbidness  or  poverty  that 
surrounds  their  social  life,  how  can  we  expect  them 
to  hold  out  the  hand  of  fellowship,  or  feel  that 
by  co-operating  with  management  in  industry  a 
brighter  outlook  or  future  may  be  assured?  As 
the  position  stands  to-day  both  sides  have  become 
distrustful  of  each  other,  due  in  a  large  measure, 
we  believe,  to  the  position  just  stated.  Those 
gentlemen  responsible  for  the  management  of  In- 
dustry, and  many  others,  are  often  distressed  at  the 
passion  and  violence  which  prevails  in  many  of  the 
convulsive  movements  of  labour,  and  the  eco- 
nomic loss  they  cause  to  the  country  at  large.  On 
the  other  hand,  labour  treats  them  with  contempt 
because  of  their  apparent  want  of  appreciation,  or 
sympathy,  with  their  legitimate  aspirations  for 


84    NATIONAL  SYSTEM  OF  ECONOMICS 

better  surroundings,  better  working  conditions, 
and  a  share  of  the  good  things  that  make  life  worth 
living.  And  who  does  not  sympathise  with  this 
point  of  view  that  has  studied  or  come  in  contact 
with  the  conditions  in  which  the  majority  of  the 
workers  live  ?  We  do  not  wish  it  to  be  understood 
that  all  workmen  lead  a  monotonous  existence, 
but  a  large  majority  do,  and  it  is  the  spirit  of 
charity  and  sympathy  which  prevails  among  them 
as  a  class  which  makes  them  stand  together  for 
good  or  ill.  The  monotony  of  performing  the 
same  operation  day  in  and  day  out  without  varia- 
tion is  bound  to  create  an  unsatisfactory  mentality 
on  the  part  of  the  workman  if  he  lacks  the  neces- 
sary time  to  devote  to  recreation  or  study. 

A  great  many  people  are  unable  to  appreciate  the 
reason  for  this  close  sympathy  and  close  co-opera- 
tion among  the  working  people,  but  they  should 
remember  that  modern  political  life  has  come  to 
mean  nothing  else  but  a  fight  between  classes  and 
masses.  And  we  are  not  inclined  to  attribute  this 
apparent  conflict  of  interest  to  anything  more  than 
the  loose  character  of  the  economic  system  which 
exists  with  us. 

Does  Laissez  faire,  Laissez  passer  not  imply  that 
we  must  all  look  after  ourselves  and  the  devil 
take  the  hindmost?  In  the  absence  of  a  co- 
ordinated national  system  of  economics,  is  it  to  be 
wondered  at  that  dissatisfaction  of  an  intensified 


THE   CO-OPERATION   OF   LABOUR     85 

nature  has  prevailed  in  nearly  all  phases  of  our 
national  life?  The  present  system  encourages  the 
spirit  of  jealousy;  the  moment  one  section  of  the 
community  obtains  any  advantage  (and  as  matters 
at  present  stand  this  can  only  be  achieved  in  the 
political  sense),  all  other  sections  become  dissatis- 
fied and  embittered  because  they  do  not  obtain 
equal  or  corresponding  advantages.  Nor  can  any 
one  reasonably  object  to  this  attitude,  for  does  it 
not  mean  that  with  Laissez  faire,  Laissez  passer 
predominating  in  our  national  life,  whatever  ad- 
vantage one  section  of  the  community  may  obtain, 
the  remainder  must  pay  for  it?  There  is  no 
standardised  economic  system  by  which  all  such 
advantages  may  be  paid  for  by  the  common 
energies  of  all;  and  there  are  many  people  who 
instinctively  realise  this,  although  they  are  unable 
to  explain  or  define  the  precise  reason  for  it. 

In  order  to  appreciate  this  moral  sentiment  which 
prevails  we  cannot  do  better  than  quote  Smith  on 
the  subject — 

"  In  all  such  cases  that  there  may  be  some  corre- 
spondence of  sentiment  between  the  spectator  and 
the  person  principally  concerned,  the  spectator 
must,  first  of  all,  endeavour,  as  much  as  he  can, 
to  put  himself  in  the  situation  of  the  other,  and 
to  bring  home  to  himself  every  little  circumstance 
of  distress  which  can  possibly  occur  to  the  sufferer. 
He  must  adopt  the  whole  case  of  his  companion 


86    NATIONAL  SYSTEM  OF  ECONOMICS 

with  all  the  minutest  incidents,  and  strive  to  render 
as  perfect  as  possible  that  imaginary  change  of 
situation  upon  which  their  sympathy  is  founded. 

"  After  all  this,  however,  the  emotion  of  the 
spectator  will  still  be  very  apt  to  fall  short  of  the 
violence  of  what  is  felt  by  the  sufferer.  Mankind, 
though  naturally  sympathetic,  never  conceive,  for 
what  has  befallen  another,  that  degree  of  passion 
which  naturally  animates  the  person  principally 
concerned.  That  imaginary  change  of  situation, 
upon  which  their  sympathy  is  founded,  is  but 
momentary.  The  thought  of  their  own  safety, 
the  thought  that  they  themselves  are  not  really 
the  sufferers,  continually  intrudes  itself  upon 
them;  and  though  it  does  not  hinder  them  from 
conceiving  a  passion  somewhat  analogous  to  what 
is  felt  by  the  sufferer,  hinders  them  from  conceiv- 
ing anything  that  approaches  to  the  same  degree 
of  violence.  The  person  principally  concerned  is 
sensible  of  this,  and  at  the  same  time  passionately 
desires  a  more  complete  sympathy. 

"  What  they  feel  will,  indeed,  always  be,  in 
some  respects,  different  from  what  he  feels,  and 
compassion  can  never  be  exactly  the  same  with 
original  sorrow;  because  the  secret  consciousness 
that  the  change  of  situations  from  which  the  sym- 
pathetic sentiment  arises  is  but  imaginary,  not 
only  lowers  it  in  degree,  but,  in  some  measure, 
varies  it  in  kind,  and  gives  it  quite  a  different 
modification.  These  two  sentiments,  however, 
may,  it  is  evident,  have  such  a  correspondence  with 


THE   CO-OPERATION   OF   LABOUR     87 

one  another  as  is  sufficient  for  the  harmony  of 
society.  Though  they  will  never  be  unisons  they 
may  be  concords,  and  this  is  all  that  is  wanted  or 
required."  l 

In  other  words,  Smith  contends  that  we  must 
all,  in  some  measure,  become  acquainted  with  the 
philosophy  of  vision  before  we  can  be  thoroughly 
convinced  of  how  little  distant  objects,  sympathies, 
or  imagination  appear  to  the  mind.  And  that  it 
is  only  by  transporting  ourselves,  if  not  in  fact,  at 
least  in  fancy,  to  a  different  station,  that  we  can 
form  any  kind  of  judgment  of  the  problems  we 
have  to  solve. 

And  it  is  this  philosophy  of  vision  that  we  must 
endeavour  to  establish  between  labour  and  man- 
agement and  other  wage-earning  classes  if  we  are 
ever  to  solve  the  question  of  the  co-operation  of 
labour  with  those  responsible  for  the  management 
of  industry.  And  this  observation  applies  equally 
as  much  to  the  one  as  to  the  other. 

On  the  other  hand,  it  is  necessary  to  establish 
a  just  balance  of  proportion.  There  seems  to  be 
a  disposition  on  the  part  of  labour  to  desire  that 
the  more  fortunate  in  life  should  not  only  dampen 
their  pleasures,  but  should  not  own  or  possess  any 
wealth  beyond  a  certain  limited  amount. 

It  would  be  absurd  to  expect  that  the  more 

1  Adam  Smith,  Theory  of  Moral  Sentiments,  Book  I,  pp.  31, 
3*>  33- 


88    NATIONAL  SYSTEM  OF  ECONOMICS 

fortunate  in  life  should  continuously  manifest 
sympathy  for  people  they  have  not  seen  or  never 
hear  of.  As  Smith  has  truly  said,  take  the  whole 
earth  at  an  average,  for  one  man  who  suffers  pain 
or  misery  you  will  find  twenty  in  prosperity,  or  at 
least  in  tolerable  circumstances.  No  reason,  surely, 
can  therefore  be  assigned  why  we  should  rather 
weep  with  the  one  than  rejoice  with  the  twenty. 
Human  existence  would  be  intolerable  were  there 
no  cheerful  characters  about.  Whatever  interest 
the  more  fortunately  placed  may  take  in  the  welfare 
of  the  weaker  members  of  society  seems  to  us 
should  follow  the  principles  of  equity  and  justice, 
and  as  soon  as  those  principles  are  established  the 
law  of  natural  liberty  should  prevail  in  so  far 
as  action,  disposition,  character,  sympathies  and 
material  welfare  are  concerned. 

"  There  are,  besides,  many  other  natural  prin- 
ciples which  all  tend  to  confirm  the  same  salutary 
doctrines.  If  we  consider  the  general  rules  by 
which  external  prosperity  and  adversity  are  com- 
monly distributed  in  this  life,  we  shall  find  that, 
notwithstanding  the  disorder  in  which  all  things 
appear  to  be  in  this  world,  yet  even  here  every 
virtue  naturally  meets  with  its  proper  reward,  with 
the  recompense  which  is  most  fit  to  encourage  and 
promote  it;  and  this  is  so  surely,  that  it  requires  a 
very  extraordinary  concurrence  of  circumstances 
entirely  to  disappoint  it. 


THE   CO-OPERATION   OF   LABOUR     89 

"  What  is  the  reward  most  proper  for  encour- 
aging industry,  prudence  and  circumspection? 
Success  in  every  sort  of  business.  And  is  it  pos- 
sible that  in  the  whole  of  life  their  virtues  should 
fail  of  attaining  it  ?  Wealth  and  external  honours 
are  their  proper  recompense,  and  the  recompense 
which  they  seldom  fail  of  acquiring.  What  reward 
is  the  most  proper  for  promoting  the  practice  of 
truth,  justice  and  humanity  ?  The  confidence,  the 
esteem  and  love  of  those  we  live  with.  Humanity 
does  not  desire  to  be  great,  but  to  be  beloved.  It 
is  not  in  being  rich  that  truth  and  justice  would 
rejoice,  but  in  being  trusted  and  believed,  recom- 
penses which  those  virtues  must  almost  always 
acquire."  * 

Smith  further  believed  that  those  actions  which 
aimed  at  the  happiness  of  a  great  community,  as 
they  demonstrated  a  more  enlarged  benevolence 
than  those  which  aimed  only  at  that  of  a  similar 
system,  so  were  they,  likewise,  proportionately  the 
more  virtuous.  And  that  in  directing  all  our 
actions  to  promote  the  greatest  possible  good,  in 
submitting  all  inferior  affections  to  the  desire  of 
the  general  happiness  of  mankind,  in  regarding 
oneself  but  as  one  of  the  many,  whose  prosperity 
was  to  be  pursued  no  further  than  it  was  consistent 
with,  or  conducive  to,  that  of  the  whole,  consisted 
the  perfection  of  virtue. 

1  Adam  Smith,  Theory  of  Moral  Sentiments,  Book  I,  pp.  342, 
343- 


90    NATIONAL  SYSTEM  OF  ECONOMICS 

It  is  from  this  standpoint,  we  believe,  that  we 
can  only  hope  to  secure  the  co-operation  and  con- 
fidence of  organised  labour  in  the  development 
of  modern  industry.  Similarly,  we  believe  that 
organised  labour  cannot  hope  to  secure  the  con- 
fidence of  management  and  capital  so  long  as  it 
persists  in  adhering  to  the  Marxian  theories  on 
modern  machinery  and  surplus  values.  Its  safest 
and  wisest  course,  we  believe,  is  to  base  its  claims 
upon  the  laws  of  justice  and  of  equity;  and  in 
pursuing  this  course  it  is  more  likely  to  attract  to 
itself  the  balance  of  moral  sentiment,  commonly 
known  as  "  public  opinion." 


ORGANISED    LABOUR    AND    THE    MARXIAN    THEORIES 

The  theories  propounded  by  Carl  Marx  seem  to 
have  fascinated  organised  labour  in  a  most  extra- 
ordinary manner,  but  as  he  has  sown  the  seeds  of 
the  economic  views  at  present  held  by  labour  it 
is  essential,  in  developing  our  present  theme,  that 
we  should  give  them  consideration. 

In  consequence  of  the  war  many  Economic 
writers  have  a  tendency  to  write  on  matters  Eco- 
nomic with  an  anti-German  bias,  endeavouring  to 


THE   CO-OPERATION   OF   LABOUR     91 

make  sound  economic  principles  conform  to  anti- 
German  sentiment;  it  is,  of  course,  difficult  to 
avoid  this  error  in  view  of  the  general  disposition 
and  mentality  of  the  public  at  the  moment,  but  it 
is  as  certain  as  anything  can  be  that  if  we  were  to 
allow  sentiment  to  gain  the  upper  hand  we  should 
be  doing  the  national  interests  more  harm  than 
good. 

If  any  one  will  examine  the  Marxian  theories 
from  this  point  of  view  they  will  upon  examination 
find  that  Marx  was  not  a  sound  economist,  for  he 
clearly  allowed  his  imagination  to  run  riot  with 
his  thoughts.  He  endeavoured  to  conform  sound 
economic  principles  to  his  conception  of  the  rela- 
tions such  as  he  considered  actually  existed,  or 
ought  to  exist,  between  capital  and  labour.  His 
first  principles  are  certainly  unsound,  but  some  of 
his  secondary  points  are  good. 

We  are  conscious  of  the  evolution  which  Marx 
had  in  mind,  and  which  he  endeavoured  to  give 
expression  to,  but  like  all  enthusiasts  he  went 
beyond  the  line  which  exists  between  that  which 
is  practical  and  rational,  and  that  which  is  irrational 
and  impracticable. 

In  his  preface  to  his  best-known  work,  Das 
Kapitaly  Marx  accuses  John  Stuart  Mill  of  a  fault 
similar  to  the  one  which  he,  and  no  doubt  all 
unconsciously,  was  also  guilty  of. 

On  page  xxiv  he  writes  as  follows — 


92    NATIONAL  SYSTEM  OF  ECONOMICS 

"The  Continental  revolution  of  1848-9  also 
had  its  reaction  in  England.  Men  who  still 
claimed  some  scientific  standing  and  aspired  to  be 
something  more  than  mere  sophists  and  sycophants 
of  the  ruling  classes,  tried  to  harmonise  the  politi- 
cal economy  of  capital  with  the  claims,  no  longer 
to  be  ignored,  of  the  proletariat.  Hence  a  shallow 
syncretism,  of  which  John  Stuart  Mill  is  the  best 
representative.  It  is  a  declaration  of  bankruptcy 
by  bourgeois  economy." 

Marx  was  evidently  of  the  opinion  that  the 
science  of  Political  Economy  in  so  far  as  it  had 
any  influence  on  national  and  material  welfare  was 
a  bankrupt  science,  with  which  point  of  view  we, 
and  many  others,  no  doubt,  heartily  agree;  his 
cardinal  mistake,  however,  was  in  attempting  to 
scrap  all  the  material  progress  that  had  been 
effected  under  Political  Economy,  and  in  attempt- 
ing to  establish  a  new  economic  school  with  ideas, 
not  only  unsound  in  theory,  but  unsound  in 
practice. 

Marx  evidently  failed  to  realise  that  the  general 
basic  principles  and  laws  of  National  Economy, 
particularly  those  propounded  by  Smith,  hold  good 
for  all  time;  but  was  he  aware  that  such  a  system 
as  National  Economy  existed?  Did  he  perceive 
and  appreciate  its  full  significance?  l 

We  do  not  think  that  Marx  could  have  given  serious  con- 
sideration to  the  system  of  National  Economy  as  an  instrument 


THE   CO-OPERATION   OF   LABOUR     93 

Every  historical  period  may  have  laws  of  its 
own,  but  the  underlying  fundamental  principles, 
we  believe,  still  remain  constant.  The  truth  must 
always  be  there,  but  the  difficulty  hitherto  has  been 
to  perceive  and  define  it,  in  a  manner  that  will  find 
general  acceptance. 

It  is,  however,  open  to  each  historical  period  to 
change  the  character  or  application  of  the  working 
conditions  based  on  the  basic  principles  to  meet 
such  changes  as  are  brought  about  by  an  evolu- 
tionary process  or  by  external  considerations;  and 
it  is  in  the  co-ordination  of  these,  we  believe,  that 
man's  progress  can  best  be  achieved.  It  certainly 
will  never  be  accomplished  by  the  destruction  of 
the  whole  fabric,  i.  e.  by  revolutionary  methods. 

through  which  he  could  have  effected  the  objects  he  had  in 
view  ;  and  it  seems  strange  that  throughout  the  whole  of  his 
book  Das  Kapital  he  should  make  no  reference  to  the  great 
work  of  Frederick  List  on  a  National  System  of  Political  Economy, 
although  he  was  a  countryman  of  his  own.  List's  National 
System  was  first  published  in  Germany  in  1841,  and  his 
American  translator  declares  the  work  was  an  immediate 
success.  It  was  also  translated  into  French,  and  published  in 
Parii,  in  1851,  by  Henry  Richelot,  a  distinguished  Economist. 
Yet  Marx  and  his  collaborator  refer  to  works,  speeches  and 
pamphlets  published  as  late  as  1881  (see  p.  814,  Das  Kapital}. 
Karl  Marx  died  in  1883,  anc^  List  in  1846.  The  omission  is 
curious,  but  it  may  explain  the  reason,  if  Marx  was  of  the 
opinion  that  "  Political  Economy  was  a  bankrupt  science," 
why  he  developed  his  own  peculiar  system.  But  that  he 
•hould  do  so  in  entire  ignorance  of  the  principles  of  National 
Economy  is  remarkable. 


94    NATIONAL  SYSTEM  OF  ECONOMICS 

For  instance,  methods  of  production  are  con- 
stantly improving,  hence  costs  of  production  are 
continuously  decreasing.  But  the  principle  of  a 
man  using  a  machine  in  production,  in  co-operation 
with  a  cutting  or  grinding  instrument,  is  still  the 
same  although  the  machine  and  cutters  may  be 
improved  out  of  all  recognition  of  the  original 
pattern.  And  similar  analogies  may  be  found  in 
the  other  sciences.  For  instance,  in  the  case  of 
banking  and  banking  credits  it  is  generally  con- 
ceded that  these  are  more  elastic  than  they  used 
to  be — greater  facilities  can  now  be  granted  than 
was  possible  in  the  last  century — but  the  under- 
lying principle  is  still  the  same  and  will  be  for  all 
time :  namely,  that  banking  is  based  on  public 
confidence.  Without  public  confidence  no  deposit 
bank  could  succeed  in  its  business. 

As  an  illustration,  take  the  case  of  a  workman 
who  by  abstinence  and  thrift  saves  a  sum  of  ^25. 
This  workman,  no  doubt,  would  deposit  this  sum 
with  the  bank  in  which  he  had  the  most  confidence, 
relying  upon  the  bank  to  pay  him  interest  upon 
his  deposit.  The  management  in  its  turn  has  to 
lend  out  the  aggregate  sums  deposited  with  the 
bank  to  certain  individuals,  firms  or  organisations, 
in  whom  it  also  has  confidence,  at  specified  rates 
of  interest,  in  order  to  be  in  a  position  to  pay 
interest  on  the  deposits  it  accepts  from  its 
customers. 


THE   CO-OPERATION   OF   LABOUR     95 

If,  however,  the  relations  between  capital  and 
labour  are  alienated,  and  if  confidence  cannot  be 
inspired  in  the  minds  of  the  gentlemen  who  control 
these  credits,  it  is  impossible  for  industry  to  be 
developed  to  its  maximum  capacity,  inasmuch  as 
it  cannot  secure  the  necessary  credits  and  absolute 
confidence  by  which  alone  it  may  be  developed. 

It  is  to  the  men  who  possess  the  greatest  ability 
and  integrity  to  whom  the  greatest  credits  are 
extended,  and  it  is  this  natural  law — i.  e.  the  per- 
sonal equation — that  Carl  Marx  has  entirely  over- 
looked in  the  consideration  which  he  gave  to  the 
development  of  modern  industry. 

In  order  to  demonstrate  the  enormous  influence 
which  the  personal  factor  has  in  modern  commercial 
transactions  the  following  illustrations  may  be 
quoted — 

At  the  time  of  the  so-called  Money  Trust  In- 
vestigation in  New  York,  Mr.  Horace  White 
pointed  out  how  largely  the  control  and  operation 
of  great  sums  of  money  by  bankers  and  other 
financial  and  industrial  organisations  was  merely 
a  question  of  gaining  the  confidence  of  the  public 
with  funds  to  invest  and  deposit. 

The  statement  made  by  this  gentleman  to  the 
Committee  of  Investigation  was  as  follows — 

"  I  am  in  favour  of  a  general  dissemination  of 
credit.  I  want  to  see  it  made  so  common  that  I 


96    NATIONAL  SYSTEM  OF  ECONOMICS 

or  anybody  can  borrow  freely,  that  I  or  anybody 
who  wants  to  build  a  railroad  or  a  sky-scraper,  or 
develop  a  copper  mine,  can  sell  bonds  at  a  fair  rate 
of  interest,  instead  of  paying  enormous  commis- 
sions to  a  grasping  syndicate  among  impecunious 
persons  or  among  well-known  rascals. 

"  Mr.  Baker  and  Mr.  Morgan  and  their  like  are 
able  to  extend  credit  to  borrowers  because  the 
public  has  extended  credit  to  them.  Millions  of 
people  who  have  saved  money  deposit  it  with 
them  or  put  it  in  banks,  trust  companies,  and 
other  institutions  which  they  control.  They  do  so 
because  they  consider  it  safe  in  their  hands. 

"It  is  the  possession  of  these  tills  of  wealth, 
coming  from  all  points  of  the  compass  to  form  a 
great  river,  that  enables  Mr.  Baker,  Mr.  Morgan 
and  their  fellows  to  extend  credit.  Take  away 
from  them  this  general  confidence  and  you  will  not 
need  any  laws  at  Washington  or  at  Albany  to  lessen 
their  power  to  extend  credit  to  others.  If  you  can 
confine  them  to  the  use  of  their  own  money — that 
is,  to  such  property  as  they  can  dispose  of  in  their 
last  wills  and  testaments — the  Money  Trust  will 
cease  to  disturb  the  imagination  of  politicians  at 
Washington. 

"  In  other  words,  before  you  can  shatter  the 
credit  which  they  are  able  to  extend  to  others  you 
must  shatter  that  which  others  extend  to  them.  I 
was  taught  in  my  youth  that  to  earn  the  confidence 
of  my  fellow-men  was  praiseworthy,  and  would 
probably  be  gainful  in  the  long  run.  If  some 
persons  have  obtained  more  of  such  confidence,  or 


THE   CO-OPERATION   OF   LABOUR     97 

have  made  better  use  of  it   than  I  have,   that  is 
nothing  to  complain  o/." 

The  italics  are  ours;  but  the  statement  is  most 
lucid  and  precise  on  what  is,  after  all,  a  natural 
economic  law.  It  is  a  natural  tendency  which  no 
Marxian  theory  could  ever  dispose  of. 

Another  well-known  New  York  banker  and 
financier,  Mr.  Otto  H.  Kuhn,  of  the  firm  of 
Messrs.  Kuhn,  Loeb  &  Co.,  of  New  York,  confirms 
this  point  of  view  in  an  eloquent  address  which 
he  gave  to  the  American  Newspaper  Publishers' 
Association  in  New  York  last  April.  Space  pre- 
vents us  from  quoting  the  address  in  full,  but  we 
give  the  salient  points  in  the  hope  that  the  prin- 
ciples he  outlines,  and  the  knowledge  he  dissemi- 
nates, may  percolate  far  and  wide  throughout  the 
general  business  community,  and  particularly 
throughout  the  ranks  of  organised  labour  in  this 
country. 

"  I  claim  that  the  men  in  charge  of  our  financial 
affairs  are,  and  to  be  successful  must  be,  every 
whit  as  honourable,  as  patriotic,  as  right-thinking, 
as  anxious  for  the  good  opinion  of  their  fellow-men 
as  those  in  other  walks  of  life.  In  every  time  of 
crisis  or  difficulty  in  the  nation's  history,  from  the 
War  of  Independence  to  the  present  European 
War,  financiers  have  given  striking  proof  of  their 
devotion  to  the  public  weal,  and  they  may  be 


98    NATIONAL  SYSTEM  OF  ECONOMICS 

depended  upon  to  do  so  whenever  and  howsoever 
called  upon. 

"  One  of  the  reasons  why  finance  so  frequently 
has  been  the  target  for  popular  attacks  is  that  it 
deals  with  the  tangible  expression  of  wealth,  and  in 
the  popular  mind  pre-eminently  personifies  wealth, 
and  is  widely  looked  upon  as  an  easy  way  to 
acquire  wealth  without  adequate  service.  Yet  it 
is  a  fact  that  there  are  very  few  financial  houses 
of  great  wealth.  All  of  the  very  greatest  fortunes 
of  the  country,  and  in  fact  most  of  the  great  for- 
tunes, have  been  made,  not  in  finance,  but  in  trade, 
industries  and  inventions. 

"  An  exaggerated  view  prevails  as  to  the  power 
of  finance.  It  is  true  there  have  been  men  in 
finance  from  time  to  time,  though  very  rarely 
indeed,  who  did  exercise  exceedingly  great  power, 
such  as,  in  our  generation,  the  late  J.  P.  Morgan 
and  E.  H.  Harriman.  But  the  power  of  these 
men  rested  not  in  their  being  financiers,  but  in  the 
compelling  force  of  their  unique  personalities.  - 

"  They  were  born  leaders  of  men,  and  they 
would  have  been  acknowledged  leaders  and  exer- 
cised the  power  of  such  leadership  in  what- 
ever walk  of  life  they  might  have  selected  as 
theirs. 

"  As  I  have  said  before,  the  capacity  of  the 
financier  is  dependent  upon  the  confidence  of  the 
financial  community  and  the  investing  public,  just 
as  the  capacity  of  the  banks  is  dependent  upon  the 
confidence  of  the  depositing  public.  Take  away 
confidence  and  what  remains  is  only  that  limited 


THE   CO-OPERATION   OF   LABOUR     99 

degree  of  power  or  influence  which  mere  wealth 
may  give. 

"  Confidence  cannot  be  compelled;  it  cannot  be 
bequeathed — or,  at  most,  only  to  a  very  limited 
extent.  It  is,  and  always  is,  bound  to  be  voluntary 
and  personal.  I  know  of  no  other  centre  where  the 
label  counts  for  less,  where  the  shine  and  potency 
of  a  great  name  is  more  quickly  rubbed  off  if  the 
bearer  does  not  prove  his  worth,  than  in  the  great 
mart  of  finance.  Mere  wealth,  indeed,  can  be 
bequeathed,  but  fortunately  and  rightly  the  power 
of  mere  wealth — to  paraphrase  a  famous  dictum — 
has  decreased,  is  decreasing  and  ought  to  be,  and 
will  be,  further  diminished. 

"  Amongst  the  powers  for  which  our  friends  of 
both  political  parties  have  a  wholesome  respect, 
one  of  the  most  potent  is  organisation.  Let  busi- 
ness then  become  militant,  not  to  secure  special 
privileges — it  does  not  want  any  and  does  not 
need  any — but  to  secure  due  regard  for  its  views 
and  its  rights  and  its  conceptions  as  to  what 
measures  will  serve  the  best  interests  of  the 
country,  and  what  measures  will  harm  and 
jeopardise  such  interests. 

"  Let  business  men  get  together  through  a 
properly  constituted  permanent  organisation,  and, 
guided  by  practical  knowledge,  broad  vision  and 
patriotism,  agree  upon  the  essentials  of  legislation 
affecting  affairs,  which  the  situation  calls  for  from 
time  to  time. 

"  Let  them  pledge  themselves  to  use  their  legis- 
lative influence  and  their  votes  to  realise  such 


ioo  NATIONAL  SYSTEM  OF  ECONOMICS 

legislation  and  to  oppose  actively  what  they  believe 
to  be  harmful  law-making. 

"  Let  them  strive,  patiently  and  persistently,  to 
gain  the  confidence  of  the  people  for  their  methods 
and  their  aims.  Let  them  meet  false  or  irrespon- 
sible or  ignorant  assertion  with  plain  and  truthful 
explanation. 

"  Let  them  take  their  case  directly  to  the  people 
— as  the  railroads  have  been  doing  of  late  with  very 
encouraging  results — -and  inaugurate  a  campaign 
of  education  in  sound  economics,  sound  finance 
and  sound  national  business  principles. 

"  Let  them  realise  that,  just  as  the  price  of 
liberty  is  eternal  vigilance,  so  eternal  effort  in  re- 
sisting fallacies  and  in  disseminating  true  and 
tested  doctrine  is  the  price  of  right  law-making 
in  a  democracy." 

The  italics  are  ours.  But  in  the  quotations  just 
given  are  to  be  found  a  most  eloquent  exposition 
of  the  principles  underlying  modern  business 
practice,  and  had  Marx  developed  his  main  theme 
from  this  standpoint,  we  believe  he  would  have 
secured  a  greater  influence  for  his  theories  than 
history  is  likely  to  give  him. 

But  Marx  would  not  concede  that  the  basic 
principles  underlying  Economic  Science  applied 
to  the  present  equally  with  the  past :  he  specifically 
denied  it.  According  to  his  views  such  abstract 
laws  do  not  exist,  as  every  historical  period  has 
laws  of  its  own;  and  that  as  soon  as  society  has 


THE  CO-OPERATION  OF  :LA&QUR:  \iiip* 


outlived  a  given  period  of  development,  and  is 
passing  over  from  one  given  stage  to  another,  it 
begins  to  be  subject  also  to  other  laws.  With  the 
varying  degree  of  development  of  productive 
power,  social  conditions  and  the  laws  governing 
them  vary  too.1 

Now  the  logical  inference  to  be  drawn  from  this 
strange  hypothesis  is  this,  that  if  every  stage  of 
development  has  its  own  law  of  production  it 
arrives  at  that  stage  of  evolution  on  certain  basic 
economic  principles.  But  Marx  argues  that 
because  we  have  achieved  and  made  good  an  evolu- 
tionary process  in  our  economic  development, 
social  conditions  naturally  change  as  well,  and  con- 
sequently we  should  destroy  the  basic  economic 
principles  on  which  alone  we  have  arrived  at  our 
present  destination. 

Our  view  of  the  position  is  simply  this,  that  if 
at  each  stage  of  our  economic  development  it  is 
found  that  social  conditions  have  changed  to  the 
disadvantage  of  any  section  of  the  community,  it 
is  the  function  of  the  State  by  legislation  or  other 
means  to  correct  such  inequalities  as  may  exist; 
but  it  is  impossible  to  imagine  any  sane  person, 
because  of  a  lack  of  proper  comprehension  in  his 
mentality,  recommending  that  we  should  turn  the 
economic  machine  upside  down  as  a  short  cut  to 
the  solution  of  a  problem  he  does  not  understand. 
1  Das  Kapitaly  pp.  xxviii,  xxix. 


tc2  NATIONAL  SYSTEM  OF  ECONOMICS 

Marx  was  certainly  an  egotist  and  a  revolution- 
ist, and  his  writings  confirm  the  view  expressed 
by  Mr.  Santayana,  late  Professor  of  Philosophy 
at  Harvard,  who,  in  his  Book,  Egotism  of  German 
Philosophy,  states  that  "  the  main  road  taken  by 
the  leading  German  philosophers  and  writers  was 
that  of  egotism  and  self-assertion;  we  see  Fichte 
and  Hegel  taking  it;  we  see  the  vice  of  absolute- 
ness and  egotism  transferred  from  the  individual 
to  the  German  State;  we  find  Hegel  asserting  that 
the  State  is  a  moral  absolute  which  has  no  duties 

to  other  States  or  to  mankind  in  general."     We 

o 

cannot  but  note  this  peculiar  German  characteristic 
permeating  the  whole  of  the  writings  of  Carl 
Marx,  who  himself  confesses  in  the  preface  to  his 
Book,  Das  Kapital,  that  he  "  openly  avowed  him- 
self the  pupil  of  that  mighty  thinker  (Hegel),  and 
even  here  and  there,  in  the  chapter  on  the  theory 
of  value,  coquetted  with  the  modes  of  expression 
peculiar  to  him." 

At  the  conclusion  of  the  fifth  chapter  of  his 
book,  page  144,  Marx  certainly  confirms  his 
egotism  in  the  following — 

"It  is  therefore  impossible  for  capital  to  be  pro- 
duced by  circulation,  and  it  is  equally  impossible 
for  it  to  originate  apart  from  circulation.  It  must 
have  its  origin  both  in  circulation  and  yet  not  in 
circulation. 

"  We  have,  therefore,  got  a  double  result. 


THE  CO-OPERATION  OF  LABOUR     103 

"  The  conversion  of  money  into  capital  has  to  be 
explained  on  the  basis  of  the  laws  that  regulate  the 
exchange  of  commodities,  in  such  a  way  that  the 
starting-point  is  the  exchange  of  equivalents.  Our 
friend,  Moneybags,  who  as  yet  is  only  an  embryo 
capitalist,  must  buy  his  commodities  at  their  value, 
must  sell  them  at  their  value,  and  yet  at  the  end 
of  the  process  must  withdraw  more  value  from 
circulation  than  he  threw  into  it  at  starting.  His 
development  into  a  full-grown  capitalist  must 
take  place,  both  within  the  sphere  of  circulation 
and  without  it.  These  are  the  conditions  of  the 
problem,  Hie  Rhodus,  hie  salta!" 

Marx,  it  will  be  noticed,  by  his  so-called  dialectic 
process  evolves  an  assumed  person  whom  he 
brings  out  in  his  discussions  by  the  name  of 
Moneybags  (we  presume  it  is  another  name  for 
Capitalist),  but  the  definite  assertions  he  makes, 
such  as:  "  Must  buy,"  "  Must  sell,"  "  Must 
take,"  leave  the  reader  no  room  for  argument. 
Voila!  there  it  is,  says  Marx. 

Before  we  can  consider  the  question  of  exchang- 
ing commodities  on  the  basis  of  the  services  con- 
tained in  them  as  equivalents,  we  have  first  of  all 
to  establish  a  standard  wage  throughout  the  world, 
and  all  the  coloured  races  must  be  included  in  that 
proposition.  But  even  if  this  came  to  pass  we 
could  not  even  then  guarantee  that  commodities 
could  be  exchanged  on  the  basis  of  equal  service, 
for  enterprise  and  personal  ability  would  almost 


104  NATIONAL  SYSTEM  OF  ECONOMICS 

certainly  turn  the  advantage  of  the  exchange  in 
favour  of  the  person  or  persons  who  possessed 
these  qualities  in  the  highest  degree. 

The  merchant,  or,  as  Marx  prefers  to  call  him, 
Mr.  Moneybags,  is  entitled,  particularly  under  the 
policy  of  Laissez  faire,  Laissez  passer,  to  purchase 
in  the  cheapest  market  such  commodities  as  he  may 
choose,  and  even  to  finance  such  transactions  for 
the  purpose  of  exchanging  or  selling  them,  in  the 
dearest  market. 

Marx  is  more  idealistic  than  he  is  practical;  we 
might  just  as  well  argue  that  we  have  no  right  to 
work  at  all,  and  that  every  man  has  a  right  to  a 
bottle  of  champagne  for  lunch.  It  is  ideal,  but 
shall  we  ever  attain  it?  In  our  view  idealistic 
theories  can  only  be  considered  so  long  as  they  can 
be  made  to  conform  to  sound  practice  and  experi- 
ence, but  so  soon  as  they  go  beyond  this  bound 
they  become  Utopian. 

The  greatest  mistake  that  Marx  has  made 
throughout  his  work  is  in  confusing  capital  or 
money  with  credit  and  credit  values;  and  in 
asserting  that  his  protege,  Mr.  Moneybags,  must 
always  make  money  out  of  his  buying  and  selling 
in  the  market-place.  What  about  the  losses? 
For  as  many  Moneybags  who  make  money  within 
the  so-called  sphere  of  circulation  and  without  it, 
there  are  as  many  who  lose  it.  In  the  game  of 
enterprise  or  speculation  it  is  the  man  who  makes 


THE  CO-OPERATION  OF  LABOUR     105 

the  fewest  mistakes  that  makes  the  most  money. 
There  are  always  two  ways  of  making  money — 
one  is  to  keep  what  you  have  got  and  the  other 
is  to  earn  it  in  legitimate  enterprise. 

It  would  not  be  unfair  to  Marx  to  consider  him 
a  deductive  Economist,  considering  that  on  his 
own  confession  he  was  a  follower  of  that  mighty 
thinker  Hegel.  Mr.  Santayana  ably  conceives  the 
average  German,  "  Meditating  on  his  own  mental 
machinery,  seeking  its  imperfections  and  limita- 
tions, and  the  self-invoker  become  very  humble 
and  be  reverently  impressed  by  the  immense  mys- 
tery that  is  beyond  his  ken.  Or  believing  that 
there  was  no  appeal  against  himself  and  no  world 
of  which  he  need  take  cognisance  except  that  of 
his  own  creating,  he  might  become  vain,  egotistical, 
and  self-assertive."  "  The  German  thinker  has 
taken  both  paths  at  different  times,  and  nothing 
is  more  remarkable  in  German  history  than  the 
alternations  of  these  moods." 

Notwithstanding  this  aspect  of  the  question, 
however,  we  must  continue  to  give  a  little  more 
consideration  to  the  theories  advanced  by  Marx. 
In  the  chapter  on  the  buying  and  selling  of  labour- 
power,  Marx  advances  a  very  interesting  point, 
which  seems  to  be  the  kernel  of  his  arguments. 
It  requires  attention,  for  it  has  been  soaked  into 
the  mentality  of  organised  labour  throughout  the 
world,  and  has  become  an  obsession  with  it.  In 


106  NATIONAL  SYSTEM  OF  ECONOMICS 

the  absence  of  a  more  accurate  interpretation  it 
clings  to  this  straw  in  a  most  religious  manner — 

"  But  in  order  that  our  owner  of  money  may  be 
able  to  find  labour-power  offered  for  sale  as  a  com- 
modity, various  conditions  must  first  be  fulfilled. 
The  exchange  of  commodities  of  itself  implies  no 
other  relations  of  dependence  than  those  which 
result  from  its  own  nature.  On  this  assumption, 
labour-power  can  appear  upon  the  market  as  a  com- 
modity, only  if,  and  so  far  as,  its  possessor,  the 
individual  whose  labour-power  it  is,  offers  it  for 
sale,  or  sells  it,  as  a  commodity.  In  order  that  he 
may  be  able  to  do  this,  he  must  have  it  at  his  dis- 
posal, must  be  the  untrammelled  owner  of  his 
capacity  for  labour,  i.  e.  of  his  person.  He  and  the 
owner  of  money  meet  in  the  market,  and  deal 
with  each  other  as  on  the  basis  of  equal  rights,  with 
this  difference  alone,  that  one  is  buyer,  the  other 
seller;  both,  therefore,  equal  in  the  eyes  of  the  law. 
The  continuance  of  this  relation  demands  that  the 
owner  of  the  labour-power  should  sell  it  only  for 
a  definite  period,  for  if  he  were  able  to  sell  it 
rump  and  stump,  once  for  all,  he  would  be  selling 
himself,  converting  himself  from  a  free  man  into 
a  slave,  from  an  owner  of  a  commodity  into  a  com- 
modity. He  must  constantly  look  upon  his 
labour-power  as  his  own  property,  his  own  com- 
modity, and  this  he  can  only  do  by  placing  it  at 
the  disposal  of  the  buyer  temporarily,  for  a  defi- 
nite period  of  time.  By  this  means  alone  can  he 
avoid  renouncing  his  rights  of  ownership  over  it. 

The  second  essential  condition  to  the  owner  of 


THE  CO-OPERATION  OF  LABOUR     107 

money  finding  labour-power  in  the  market  as  a 
commodity  is  this :  that  the  labourer,  instead  of 
being  in  the  position  to  sell  commodities  in  which 
his  labour  is  incorporated,  must  be  obliged  to  offer 
for  sale  as  a  commodity  that  very  labour-power, 
which  exists  only  in  his  living  self. 

"  In  order  that  a  man  may  be  able  to  sell  com- 
modities other  than  labour-power,  he  must  of 
course  have  the  means  of  production,  as  raw 
material,  implements,  etc.  No  boots  can  be  made 
without  leather.  He  requires  also  the  means  of 
subsistence.  Nobody — not  even  c  a  musician  of  the 
future ' — can  live  upon  future  products,  or  upon 
use- values  in  an  unfinished  state;  and  ever  since 
the  first  moment  of  his  appearance  on  the  world's 
stage,  man  always  has  been,  and  must  still  be,  a 
consumer,  both  before  and  while  he  is  producing. 
In  a  society  where  all  products  assume  the  form  of 
commodities,  these  commodities  must  be  sold  after 
they  have  been  produced;  it  is  only  after  their  sale 
that  they  can  serve  in  satisfying  the  requirements 
of  their  producer.  The  time  necessary  for  their 
sale  is  superadded  to  that  necessary  for  their 
production. 

"  For  the  conversion  of  his  money  into  capital, 
therefore,  the  owner  of  money  must  meet  in  the 
market  with  the  free  labourer,  free  in  the  double 
sense,  that  as  a  free  man  he  can  dispose  of  his 
labour-power  as  his  own  commodity,  and  that,  on 
the  other  hand,  he  has  no  other  commodity  for 
sale,  is  short  of  everything  necessary  for  the 
realisation  of  his  labour-power. 


io8  NATIONAL  SYSTEM  OF  ECONOMICS 

"  The  question  why  this  free  labourer  confronts 
him  in  the  market,  has  no  interest  for  the  owner 
of  money,  who  regards  the  labour  market  as  a 
branch  of  the  general  market  for  commodities. 
And  for  the  present  it  interests  us  just  as  little. 
We  cling  to  the  fact  theoretically,  as  he  does  prac- 
tically. One  thing,  however,  is  clear — nature  does 
not  produce  on  the  one  side  owners  of  money  or 
commodities,  and  on  the  other  men  possessing 
nothing  but  their  own  labour-power.  This  rela- 
tion has  no  natural  basis,  neither  is  its  social  basis 
one  that  is  common  to  all  historical  periods.  It  is 
clearly  the  result  of  a  past  historical  development, 
the  product  of  many  economical  revolutions,  of  the 
extinction  of  a  whole  series  of  older  forms  of  social 
production."  1 

It  is  quite  clear  from  the  foregoing  that  Marx 
is  of  the  opinion  that  no  one  has  any  right  to  save 
and  possess  capital.  He  comes  into  the  world 
and  finds  that  there  has  been  some  thrifty  persons 
in  the  world  before  him  and  considers  it  very 
unfair  that  these  should  have  had  any  advantage 
over  him,  notwithstanding  the  fact  that  his  own 
parents  might  not  have  been  as  thrifty  as  they 
ought  to  have  been.  He  asserts,  and  no  one  can 
doubt  the  emphasis  he  lays  upon  it,  "  that  one 
thing  is  quite  clear — nature  does  not  produce  on 
the  one  side  owners  of  money  or  commodities,  and 

1  Das  Kapital,  pp.  146-47. 


THE  CO-OPERATION  OF  LABOUR     109 

on  the  other  men  possessing  nothing  but  their 
own  labour-power.  This  relation  has  no  natural 
basis,  neither  is  its  social  basis  one  that  is  common 
to  all  historical  periods." 

The  only  deduction  we  can  form  from  the  fore- 
going is  this,  that  every  child  that  is  born  into  the 
world  has  a  right  to  demand,  should  he  be  not 
satisfied  with  his  lot,  a  general  redistribution  of  the 
wealth  of  the  world;  but  the  only  point  that  Marx 
is  not  quite  clear  upon  is  the  age  at  which  the  new- 
born can,  or  ought  to  be  allowed  to,  demand  the 
general  redistribution. 

If  we  were  to  follow  the  Marxian  theories  to 
their  logical  conclusion  we  have  to  assume  that  no 
one  has  any  right  to  indulge  in  abstinence  or  thrift 
of  any  kind.  He  would  like  us  all  to  become 
improvident  and  spend  all  we  earn  regardless  of 
the  future  or  the  welfare  of  our  children.  No 
person,  according  to  Marx,  should  be  allowed  to 
save  ^25,  or  more  if  he  can,  because  by  so  doing 
he  becomes  a  capitalist.  But  is  not  every  worker 
who  gains  experience  and  knowledge  in  production 
a  capitalist,  and  does  the  history  of  trade  union- 
ism not  prove  it?  In  the  engineering  profession 
skilled  machine  operators  receive,  according  to  the 
district  in  which  they  are  employed,  a  recognised 
minimum  wage  of  thirty-five  shillings  per  week, 
and  according  as  they  may  be  employed  on  day  or 
piece  work  the  conditions  are  such  that  if  they 


no  NATIONAL  SYSTEM  OF  ECONOMICS 

show  adaptability  and  skill  they  can  earn  more  by 
way  of  bonus.  The  workman's  experience  and 
knowledge,  or,  as  Marx  calls  it,  his  labour-power, 
is  therefore  his  personal  capital,  inasmuch  as  the 
salary  he  draws,  and  his  bonus,  is  the  dividend  he 
earns  upon  the  results  of  his  productive  work. 
And  the  price  he  has  been  able  to  command  in 
recent  years  has  been  on  an  increasing  scale. 

As  we  have  stated  on  a  previous  occasion,  it  is 
in  industry  that  man  now  thrives,  and  the  greater 
the  skill  with  which  he  can  exercise  his  hands  and 
brain,  the  greater  is  the  value  of  his  services,  not 
only  to  himself,  but  to  his  employer  and  the  State. 
Personal  service  is  the  greatest  asset,  provided  it 
is  efficient,  which  any  individual  can  possess;  it  is 
his  capital,  and  the  degree  of  comfort  and  pleasure 
to  be  derived  therefrom,  and  the  remuneration, 
depends  entirely  upon  his  capacity  and  the  oppor- 
tunities he  may  have  for  exercising  it.  Enterprise 
and  opportunity  will  always  be  found  to  prevail 
in  the  operations  of  labour  if  they  are  sought  for, 
just  as  much,  and  as  many,  as  there  is  to  be  found 
by  those  engaged  in  the  direction  of  it.  This  is  a 
natural  law,  and  we  believe  it  will  never  change. 

We  believe  in  the  view  that  "  the  struggle  of 
existence  is  the  life  of  nature,  the  basis  of  all 
healthy  development,  and  that  all  existing  things 
show  themselves  to  be  the  result  of  contesting 
forces.  That  in  the  life  of  man  the  struggle  is 


THE  CO-OPERATION  OF  LABOUR     in 

not  merely  the  destructive  but  the  life-giving  prin- 
ciple." "  To  supplant  or  be  supplanted  is  the 
essence  of  life  " — and  that  this  continuous  struggle 
is  the  essence  of  enterprise.  But  notwithstanding 
this  view,  we  are  of  the  opinion  that  we  have  also 
our  moral  responsibilities  to  fulfil  to  those  of  our 
fellow-men  who,  from  sheer  mental  and  physical 
incapacity,  are  unable  to  adequately  perform  their 
daily  task  in  industrial  development;  and  the  safe- 
guards we  should  adopt  for  their  benefit  we  shall 
consider  later. 


CHAPTER   V 

MODERN  MACHINERY  AND  THE  MARXIAN 
THEORIES   ON   THE   SUBJECT 

WE  think  we  have  shown  that  Marx  was  wrong 
in  assuming  that  capital  and  labour  were  two 
distinct  classes  whose  interests  were  naturally 
antagonistic  one  to  the  other.  He  argued  from 
wrong  premises,  inasmuch  as  every  labourer  is  a 
capitalist;  he  offers  his  experience  and  knowledge 
for  a  price,  and  every  person  who  controls  or  directs 
capital,  i.  e.  credit,  is  a  labourer  by  reason  of  the 
fact  that  he  has  to  secure  a  result,  or  a  profit,  on 
the  capital  or  credit  for  which  he  is,  or  has  made 
himself,  responsible. 

The  responsibility  of  the  manager  who  controls 
or  directs  capital  into  profitable  employment  is  very 
much  greater  than  that  assumed  by  the  manual 
labourer.  If  by  any  mistake  of  judgment  the 
manager  should  fail  to  produce  results  in  the  con- 
duct of  his  operations,  whether  it  be  in  ordinary 
industrial  enterprise,  in  the  financing  of  it,  or  in 
giving  credit,  he  will  lose  the  confidence  of  those 

112 


ON  MODERN   MACHINERY       113 

who  supply  him  with  the  requisite  capital — i.  e. 
credit;  and  he  can  only  with  difficulty  regain  it. 
Marx  does  not  consider  such  unfortunate  indi- 
viduals, and  there  are  many.  But  it  is  obvious 
that  he  would  have  been  in  difficulties  had  he 
done  so. 

Then,  again,  consider  the  case  of  a  factory  that 
is  fully  equipped  for  producing  a  bicycle  at  a  cost 
°f>  sa7>  £4-  A  considerable  amount  of  capital 
and  enterprise  has  been  displayed  in  creating  the 
business  and  organisation.  No  sooner  has  it  got 
going  when  an  enterprising  machine-tool  maker 
produces  machines  which  will  cut  or  reduce  the 
productive  cost  of  the  bicycle  by,  say,  twenty  per 
cent.  It  is  obvious  that  if  the  firm  has  to  continue 
its  existence  the  old  plant  must  be  scrapped  at  the 
earliest  possible  moment.  But  what  about  the 
original  cost  of  the  machine  tools,  jigs  and  fixtures 
which  must  be  scrapped?  What  solution  has 
Marx  to  offer  for  such  a  problem  as  this  ?  Labour, 
meanwhile,  has  been  paid  twenty  shillings  in  the 
pound  in  the  production  of  the  plant,  but  what 
contribution  is  it  prepared  to  make  towards  its 
total  loss?  The  case  quoted  is  not  assumed  for 
the  purpose  of  argument;  the  country  is  full  of 
examples  such  as  we  mention. 

If  this  discourse  is  to  prove  of  any  utility  in 
assisting  to  bring  about  closer  co-operation  between 
capital  and  labour  it  is  desirable  that  we  should 


n4  NATIONAL  SYSTEM  OF  ECONOMICS 

consider  the  Marxian  theory  with  regard  to  the 
foregoing. 

In  his  Essay,  "  Constant  Capital  and  Variable 
Capital,"  pages  185-6,  Das  Kapital,  he  writes  as 
follows — 

"  If  we  now  consider  the  case  of  any  instrument 
of  labour  during  the  whole  period  of  its  service, 
from  the  day  of  its  entry  into  the  workshop  till  the 
day  of  its  banishment  into  the  lumber-room,  we 
find  that  during  this  period  its  use-value  has  been 
completely  consumed,  and  therefore  its  exchange 
value  completely  transferred  to  the  product.  For 
instance,  if  a  spinning  machine  lasts  for  ten  years, 
it  is  plain  that  during  that  working  period  its  total 
value  is  gradually  transferred  to  the  product  of  the 
ten  years.  The  lifetime  of  an  instrument  of 
labour,  therefore,  is  spent  in  the  repetition  of  a 
greater  or  less  number  of  similar  operations.  Its 
life  may  be  compared  with  that  of  a  human  being. 
Every  day  brings  a  man  twenty-four  hours  nearer 
to  his  grave;  but  how  many  days  he  has  still  to 
travel  on  that  road  no  man  can  tell  accurately  by 
merely  looking  at  him.  This  difficulty,  however, 
does  not  prevent  life  insurance  offices  from  draw- 
ing, by  means  of  the  theory  of  averages,  very 
accurate,  and  at  the  same  time  very  profitable, 
conclusions.  So  it  is  with  the  instruments  of 
labour.  It  is  known  by  experience  how  long  on 
the  average  a  machine  of  a  particular  kind  will 
last.  Suppose  its  use-value  in  the  labour-process 
to  last  only  six  days  Then,  on  the  average,  it 


ON  MODERN   MACHINERY       115 

loses  each  day  one-sixth  of  its  use-value,  and  there- 
fore parts  with  one-sixth  of  its  value  to  the  daily 
product.  The  wear  and  tear  of  all  instruments, 
their  daily  loss  of  use-value,  and  the  corresponding 
quantity  of  value  they  part  with  to  the  product,  are 
accordingly  calculated  upon  this  basis. 

"It  is  thus  strikingly  clear  that  means  of  pro- 
duction never  transfer  more  value  to  the  product 
than  they  themselves  lose  during  the  labour- 
process  by  the  destruction  of  their  own  use-value. 
If  such  an  instrument  has  no  value  to  lose — if,  in 
other  words,  it  is  not  the  product  of  human  labour, 
it  transfers  no  value  to  the  product.  It  helps  to 
create  use-values  without  contributing  to  the 
formation  of  exchange  value.  In  this  class  are 
included  all  means  of  production  supplied  by 
Nature  without  human  assistance,  such  as  land, 
wind,  water,  metals  in  situ,  and  timber  in  virgin 
forests." 

Then  on  pages  188  and  193  he  returns  to  the 
subject  as  follows — 

"  We  have  seen  that  the  means  of  production 
transfer  value  to  the  new  product,  so  far  only  as 
during  the  labour-process  they  lose  value  in  the 
shape  of  their  old  use-value.  The  maximum  loss 
of  value  that  they  can  suffer  in  the  process  is 
plainly  limited  by  the  amount  of  the  original  value 
with  which  they  came  into  the  process,  or,  in  other 
words,  by  the  labour-time  necessary  for  their  pro- 
duction. Therefore,  the  means  of  production  can 


n6  NATIONAL  SYSTEM  OF  ECONOMICS 

never  add  more  value  to  the  product  than  they 
themselves  possess  independently  of  the  process  in 
which  they  assist.  However  useful  a  given  kind 
of  raw  material,  or  a  machine,  or  other  means  of 
production  may  be,  though  it  may  cost  ,£150,  or, 
say,  500  days'  labour,  yet  it  cannot,  under  any 
circumstances,  add  to  the  value  of  the  product 
more  than  ,£150.  Its  value  is  determined  not  by 
the  labour-process  into  which  it  enters  as  a  means 
of  production,  but  by  that  out  of  which  it  has 
issued  as  a  product.  In  the  labour-process  it  only 
serves  as  a  mere  use-value,  a  thing  with  useful 
properties,  and  could  not,  therefore,  transfer  any 
value  to  the  product,  unless  it  possessed  such 
value  previously. 

"  As  the  value  of  the  raw  material  may  change, 
so,  too,  may  that  of  the  instruments  of  labour,  of 
the  machinery,  etc.,  employed  in  the  process;  and 
consequently  that  portion  of  the  value  of  the  pro- 
duct transferred  to  it  from  them  may  also  change. 
If,  in  consequence  of  a  new  invention,  machinery 
of  a  particular  kind  can  be  produced  by  a  dimin- 
ished expenditure  of  labour,  the  old  machinery 
becomes  depreciated  more  or  less  and  consequently 
transfers  so  much  less  value  to  the  product.  But 
here,  again,  the  change  in  value  originates  outside 
the  process  in  which  the  machine  is  acting  as  a 
means  of  production.  Once  engaged  in  this  pro- 
cess, the  machine  cannot  transfer  more  value  than 
it  possesses  apart  from  the  process. 

"  Just  as  a  change  in  the  value  of  the  means  of 
production,  even  after  they  have  commenced  to 


ON  MODERN    MACHINERY       117 

take  a  part  in  the  labour  process,  does  not  alter 
their  character  as  constant  capital,  so,  too,  a  change 
in  the  proportion  of  constant  to  variable  capital 
does  not  affect  the  respective  functions  of  these 
two  kinds  of  capital.  The  technical  conditions  of 
the  labour  process  may  be  revolutionised  to  such 
an  extent  that  where  formerly  ten  men,  using  ten 
implements  of  small  value,  worked  up  a  relatively 
small  quantity  of  raw  material,  one  man  may  now, 
with  the  aid  of  one  expensive  machine,  work  up 
one  hundred  times  as  much  raw  material.  In  the 
latter  case  we  have  an  enormous  increase  in  the 
constant  capital  that  is  represented  by  the  total 
value  of  the  means  of  production  used,  and  at  the 
same  time  a  great  reduction  in  the  variable  capital 
invested  in  labour-power.  Such  a  revolution, 
however,  alters  only  the  quantitative  relation  be- 
tween the  constant  and  the  variable  capital,  or  the 
proportions  in  which  the  total  capital  is  split  up 
into  its  constant  and  variable  constituents;  it  has 
not  in  the  least  degree  affected  the  essential 
differences  between  the  two." 

And  in  a  footnote  at  the  bottom  of  page  189  it  is 
as  well  to  note  the  mental  attitude  which  Marx 
adopts  towards  problems  of  this  kind;  although 
we  know  it  to  be  irrational,  nevertheless  the  mental 
philosophy  indicated  still  exists  to  a  very  large 
extent,  and  has  considerable  influence  in  alienating 
labour,  management  and  capital — 

"  In  The  Times  of  November  26,  1862,  a  manu- 


n8  NATIONAL  SYSTEM  OF  ECONOMICS 

facturer,  whose  mill  employed  800  hands,  and  con- 
sumed, on  the  average,  150  bales  of  East  Indian, 
or  130  bales  of  American  cotton,  complains,  in 
doleful  manner,  of  the  standing  expenses  of  his 
factory  when  not  working.  He  estimates  them 
at  ^6000  a  year.  Among  them  are  a  number  of 
items  that  do  not  concern  us  here,  such  as  rents, 
rates,  and  taxes,  insurance,  salaries  of  the  manager, 
book-keeper,  engineer,  and  others.  Then  he 
reckons  ,£150  for  coal  used  to  heat  the  mill 
occasionally,  and  run  the  engine  now  and  then. 
Besides  this,  he  includes  the  wages  of  the  people 
employed  at  odd  times  to  keep  the  machinery  in 
working  order.  Lastly,  he  puts  down  ^1200  for 
depreciation  of  machinery,  because  *  the  weather 
and  the  natural  principle  of  decay  do  not  suspend 
their  operations  because  the  steam-engine  ceases 
to  revolve.  He  says,  emphatically,  he  does  not 
estimate  his  depreciation  at  more  than  the  small 
sum  of  ;£i2oo,  because  his  machinery  is  already 
nearly  worn  out." 

It  is  very  difficult  to  follow  the  point  that  Marx 
seeks  to  establish  in  the  foregoing,  for  he  mani- 
festly shows  a  lack  of  experience  of  the  subject  he 
attempts  to  deal  with,  and  also  a  lack  of  precision 
in  expression.  He  evidently  stops  short  in  places 
because  it  does  not  suit  him  for  the  purpose  of  his 
argument  to  continue.  Briefly  stated,  the  actual 
position  is  as  follows— 

In  a  manufactory  the  purpose  of  the  capital  of 


ON  MODERN   MACHINERY       119 

the  company  controlling  it  is  to  provide  machinery 
and  tools  for  labour  to  operate  in  production. 
And  we  think  it  can  be  safely  asserted  that  the 
object  of  these  means  of  production  is  not  only 
to  cheapen  costs  of  production  as  much  as  possible, 
but  to  lighten  the  burden  of  labour.  Now  Marx 
is  of  the  opinion  that  a  machine  tool,  for  instance, 
can  never  add  to  the  value  of  its  production  more 
value  than  the  machine  itself  possesses  independ- 
ently of  the  process  in  which  it  may  assist.  And 
we  presume  he  includes  with  the  machine  tool  the 
cutters,  fixtures,  and  jigs  that  go  with  it. 

To  argue  the  case  from  this  standpoint  is  wrong 
in  theory  as  well  as  in  practice,  and  this  applies 
to  labour  power,  as  well  as  to  management  and 
capital. 

The  use-value  of  a  machine  tool,  its  acces- 
sories and  motive  power,  can  never  be  transferred 
to  its  product  except  in  orders  of  a  special  char- 
acter, which  are  not  likely  to  be  repeated  in  the 
form  in  which  they  were  originally  placed.  In  all 
other  cases  it  is  the  depreciation  value,  i.e.  wear 
and  tear,  only  that  is  added,  or  ought  to  be  added, 
to  the  cost  or  value  of  the  article  produced.  It  is 
obviously  necessary  to  do  this  in  order  that  the 
capital  of  the  company  invested  in  the  business 
is  not  impaired. 

In  the  event,  however,  of  an  improved  machine 
tool  being  placed  on  the  market  by  the  machine- 


120  NATIONAL  SYSTEM  OF  ECONOMICS 

tool  maker  which  cheapens  production  by,  say, 
ten  or  fifteen  per  cent.,  the  value  of  the  old  plant 
ceases  as  an  asset  and  must  be  written  off  what 
Marx  is  pleased  to  term  the  constant  capital 
employed  in  the  business,  and  replaced  gradually 
out  of  the  extra  margin  of  profit  which  the  new 
machine  or  machines  produce. 

But  in  all  the  points  which  Marx  raises  in  this 
connection  he  overlooks  the  fact  that  costs  of  pro- 
duction in  the  manufacture  of  articles  of  utility 
are  continuously  decreasing,  as  well  as  the  selling 
prices,  and  were  it  not  for  this  we  could  not  stand 
the  extra  burdens  of  taxation  imposed  upon  us 
from  time  to  time;  nor  could  labour  obtain  any 
increase  of  wages  were  it  not  for  the  wider  margins 
which  improved  machinery,  and  other  improved 
methods,  create  in  production. 

In  order  to  confirm  this  proposition  the  follow- 
ing table  of  earnings  and  production,  published 
in  1915  by  the  United  States  Steel  Corporation, 
is  quoted,  and  it  is  highly  instructive.  This  table 
is  selected  because  the  productions  of  the  company 
have  been  protected  during  the  period  shown  by 
a  tariff.  It  will  be  seen  that  in  the  year  1902  the 
United  States  Steel  Corporation  earned  almost  as 
much  on  8,197,000  tons  as  it  did  in  1913  on 
12,374,000  tons;  that  the  average  wages  paid  have 
increased  continuously  from  1902  until  1913  (with 
the  temporary  exception  of  1904);  that,  notwith- 


ON   MODERN   MACHINERY       121 

standing  the  continuous  increase  of  wages,  costs 
of  production  have  continuously  decreased;  that 
the  average  price  of  the  finished  product  has  been 
decreasing  throughout  the  period;  that  the  average 
profits  earned  by  the  Corporation  per  ton  have 
gradually  decreased. 


Year. 

Average 
Wage. 

Average 
Prices. 

Shipments. 
Tons. 

Earnings 
per  Ton. 

Total  Net 
Earnings. 

1902 

$717 

$39-96 

8,197,000 

$13-25 

$133,308,714 

1903 

702 

3954 

7,459,000 

10-50 

109,171,152 

1904 

677 

34-89 

6.793,000 

8-51 

73,176,522 

1905 

711 

36-64 

9,225-000 

10-45 

119,787,658 

1906 

730 

39-29 

10,578,000 

11-90 

156,642,273 

1907 

765 

40-63 

10,565,000 

12-55 

160,984,673 

1908 

729 

38-17 

6,207,000 

1206 

91,847,710 

1909 

776 

3524 

9,859,000 

10-98 

131,491,413 

1910 

801 

36-11 

10,734,000 

10-86 

141,054,754 

1911 

820 

33-11 

9,476,000 

8-91 

104,305,464 

1912 

859 

33-54 

12,506,000 

667 

108,174,672 

1913 

905 

36-49 

12,374,000 

9-05 

137,181,345 

1914 

905 

29-41 

8,500,000 

6-00 

75,000,000 

Then,  again,  what  about  the  large  producers, 
i.e.  firms  who  produce  on  a  large-scale  basis,  who 
have  many  advantages  which  the  smaller  have  not; 
in  the  fact  that  they  can  afford  to  instal  new 
machinery  as  it  appears  on  the  market,  and  even 
retain  special  staffs  for  designing  automatic  ma- 
chinery in  their  own  private  workshops,  which 
often  is  not  heard  of  outside  their  own  sphere  of 
activity. 

Further,  it  may  very  often  prove,  as  a  matter 
of  fact  cases  do  exist,  that  although  the  capital 


122  NATIONAL  SYSTEM  OF  ECONOMICS 

of  two  firms  engaged  in  the  same  line  of  business 
and  invested  in  plant  and  machinery  may  be  re- 
garded as  constant  capital,  yet  in  character  and 
composition  both  plants  may  be  as  different  as 
chalk  is  from  cheese.  In  view  of  this,  may  it  not 
be  regarded  as  variable  capital,  thereby  disproving 
Marx's  theory?  This  being  the  case,  and  as  long 
as  human  nature  is  what  it  is,  is  it  not  useless  to 
assume  Marx's  proposition  as  a  true  one  in  an 
economic  discussion  of  the  kind  such  as  he  seeks 
to  originate? 

One  of  the  greatest  factors  in  production  is 
individuality,  and  nature  has  provided  that  certain 
men  shall  possess  this  quality  in  a  greater  degree 
than  others.  As  it  is  with  nature  and  individual- 
ity, so  it  is  between  firms  and  organisations,  and  it 
is  this  constant  struggle  for  perfection  which  stimu- 
lates invention,  the  arts,  and  sciences,  out  of  which 
man's  progress  is  best  achieved. 

In  First  Principles  of  Production  we  laid  down 
the  proposition  some  years  ago  that  the  prosperous 
condition  of  the  State  is  entirely  due  to  individual 
initiative;  and  that  similarly  the  success  of  a 
commercial  undertaking  can  invariably  be  traced 
to  the  same  source;  and  that  whilst  individuality 
may  be  contained  within  the  organisation,  it  is 
nevertheless  present,  and  makes  its  influence  felt 
in  all  of  its  productions.  As  we,  therefore,  cannot 
equalise  temperament,  character,  and  nature  gener- 


ON  MODERN   MACHINERY       123 

ally,  how  can  we  hope  to  equalise  methods  and 
costs  of  production,  such  as  exist  between  indi- 
vidual firms  or  organisations?  As  it  cannot  be 
done,  may  we  not  then  regard  the  socialistic 
theories  advanced  by  Marx  as  having  been  ex- 
ploded by  history,  time  and  experience,  and  as 
being  thoroughly  Utopian  in  character? 

The  theory  which  Marx  also  advances  that  a 
machine,  "  though  it  may  cost  ^150,  or,  say,  500 
days'  labour,  yet  it  cannot,  under  any  circum- 
stances, add  to  the  value  of  the  product  more  than 
^150,"  is  very  amateurish  and  childish;  and  we 
trust  we  may  be  excused  for  using  such  strong 
expressions. 

The  value  of  an  improved  machine  which  costs, 
say,  ^150,  cannot  be,  and  is  not,  determined,  in 
so  far  as  the  welfare  of  society  is  concerned,  by  its 
original  purchase  price,  but  by  the  permanent 
reduction  which  it  ensures  in  costs  of  production. 
The  more  that  costs  of  production  are  reduced  the 
more  does  humanity  at  large  benefit,  inasmuch  as 
it  is  enabled  to  purchase  articles  of  utility  at  lower 
prices.  In  other  words,  the  purchasing  value  of 
the  circulating  media  is  increased. 

Cheap  production  is  a  boon  to  humanity,  for  it 
tends  to  bring  luxury  within  the  reach  of  all;  cheap 
production  in  one  sphere  of  activity  stimulates 
further  production  in  other  spheres  of  activity,  as 
it  makes  possible  what  in  other  circumstances 


i24  NATIONAL  SYSTEM  OF  ECONOMICS 

might  be  impossible.  It  widens  the  range  of 
employment  and  advances  civilisation.1 

As  an  illustration  let  us  take  the  case  of  a 
sewing-machine.  This  is  a  necessity  in  most 
homes,  more  especially  in  poor  ones.  If  the  cost 
of  producing  these  machines  were  high  only  the 
better-class  families  could  afford  to  buy  them;  but 
if  the  cost  of  production  be  low  then  every  family 
may  buy  them;  and  so  we  come  to  see  that  one  of 
the  essential  factors  in  human  welfare  is  cheap  pro- 
duction, and  it  is  this  aspect  of  the  question  that 
Marx  has  misunderstood  in  his  treatment  of  the 
subject.  The  value  of  the  machine  tool  as  a  means 
of  production,  therefore,  from  the  Economic  point 
of  view,  is  determined  solely  by  the  permanent 
contribution  which  it  makes,  apart  from  the  possi- 
bility of  enabling  higher  wages  and  taxation  to  be 
paid,  to  the  welfare  and  comfort  of  society  gener- 
ally, by  lowering  the  price  of  the  article  of  utility 
it  produces. 

If  this  be  so,  and  we  believe  the  proposition  to 
be  incontrovertible,  Marx  was  certainly  wrong  in 
persuading  labour-power  into  believing,  as  he 
does  on  page  427,  Das  Kapital,  that  all  machinery, 
being  the  embodiment  of  capital,  is  to  be  fought 
against;  and  labour-power  must  surely  agree  with 
our  view. 

Marx  takes  a  very  superficial  view  of  the  value 

1  First  Principle*  of  Production  (].  Taylor  Peddle),  p.  19. 


ON   MODERN    MACHINERY       125 

of  modern  machinery,  and  although  experience 
and  result  has  disproved  the  fallacy  he  sought  to 
establish  in  this  connection,  yet  his  views  are  still 
very  largely  held  by  organised  labour  to-day.  If 
we  can,  therefore,  meet  the  arguments  squarely 
and  show  the  true  and  tested  doctrine  which  history 
and  experience  has  proved  to  be  sound,  we  may 
pave  the  way  for  a  better  understanding  between 
capital,  management  and  labour. 

If  we  have  no  immediate  experience  of  what 
other  men  feel,  or  think,  we  can  form  no  idea  of 
the  manner  in  which  they  are  affected.  But  if, 
on  the  other  hand,  we  know  what  they  feel  and 
think,  yet  do  not  make  any  attempt  to  understand 
it,  or  to  dissipate  any  erroneous  impression  which 
may  be  formed,  we  cannot  rely  upon  securing 
that  confidence  which  is  the  first  essential  of  any 
understanding. 

The  stand  which  organised  labour  takes  to-day 
against  modern  machinery  and  other  improved 
methods  of  production  can  be  attributed  to  the 
following  erroneous  proposition  advanced  by  Marx 
in  his  Book,  Das  Kapital,  page  451.  The  average 
lay  mind  would  be  inclined,  at  the  first  impression, 
to  accept  it  as  a  true  proposition,  but  we  have 
already  explained  in  the  last  two  pages  why  it  is 
not,  and  everything  that  is  possible  should  be  done 
to  dissipate  the  erroneous  impressions  that  have 
been  formed  in  regard  thereto. 


126  NATIONAL  SYSTEM  OF  ECONOMICS 

"  Nevertheless,  in  spite  of  the  mass  of  hands 
actually  displaced  and  virtually  replaced  by  ma- 
chinery, we  can  understand  how  the  factory  opera- 
tives, through  the  building  of  more  mills  and  the 
extension  of  old  ones  in  a  given  industry,  may 
become  more  numerous  than  the  manufacturing 
workmen  and  handicraftsmen  that  have  been  dis- 
placed. Suppose,  for  example,  that,  in  the  old 
mode  of  production,  a  capital  of  ^500  is  employed 
weekly,  two-fifths  being  constant  and  three-fifths 
variable  capital,  i.  e.  £200  being  laid  out  in  means 
of  production,  and  ^300,  say  £i  per  man,  in 
labour-power.  On  the  introduction  of  machinery 
the  composition  of  this  capital  becomes  altered. 
We  will  suppose  it  to  consist  of  four-fifths  constant 
and  one-fifth  variable,  which  means  that  only  £100 
is  now  laid  out  in  labour-power.  Consequently, 
two-thirds  of  the  workmen  are  discharged.  If 
now  the  business  extends,  and  the  total  capital 
employed  grows  to  ^1500  under  unchanged  con- 
ditions, the  number  of  operatives  employed  will 
increase  to  300,  just  as  many  as  before  the  intro- 
duction of  machinery.  If  the  capital  further  grows 
to  ^200,  400  men  will  be  employed,  or  one-third 
more  than  under  the  old  system.  Their  numbers 
have,  in  point  of  fact,  increased  by  100,  but  rela- 
tively, i.  e.  in  proportion  to  the  total  capital  ad- 
vanced, they  have  diminished  by  800,  for  the 
/"2OOO  capital  would,  in  the  old  state  of  things, 
have  employed  1200  instead  of  400  men.  Hence, 
a  relative  decrease  in  the  number  of  hands  is  con- 
sistent with  an  actual  increase.  We  assumed  above 


ON   MODERN   MACHINERY       127 

that  while  the  total  capital  increases,  its  composi- 
tion remains  the  same,  because  the  conditions  of 
production  remain  constant.  But  we  have  already 
seen  that,  with  every  advance  in  the  use  of  ma- 
chinery, the  constant  component  of  capital,  that 
part  which  consists  of  machinery,  raw  material, 
etc.,  increases,  while  the  variable  component,  the 
part  laid  out  in  labour-power,  decreases.  We  also 
know  that  in  no  other  system  of  production  is 
improvement  so  continuous,  and  the  composition 
of  the  capital  employed  so  constantly  changing  as 
in  the  factory  system." 

It  is  the  general  want  of  knowledge  of  Economic 
Science  which  is  the  cause  of  most  of  the  trouble 
and  suspicion  which  exists  between  capital,  man- 
agement and  labour,  and  it  is  strange  how  blindly 
political  groups  follow  the  apostles  of  a  particular 
school  of  economic  thought  merely  because  the 
policy  they  advocate  is  the  one  most  likely  to 
satisfy  their  political  inclinations. 

We  have  Liberals  following  the  doctrine  of 
Laissez  faire,  Laissez  passer  advocated  by  John 
Stuart  Mill  and  Richard  Cobden  because  it  will 
ensure  a  reservoir  of  cheap  labour;  we  have 
Socialists  following  the  Marxian  theories  of  getting 
something  for  nothing;  and  we  have  certain  manu- 
facturers who  desire  the  American  system  of  high 
tariffs  in  order  to  establish  the  principle  of  restric- 
tion of  trade.  Each  of  these  groups  is  unques- 


128  NATIONAL  SYSTEM  OF  ECONOMICS 

tionably  chasing  the  shadow  up  a  blind  alley,  and 
it  is  this  groping  in  the  dark  which  is  responsible 
for  the  industrial  unrest  and  suspicion  which 
prevails  in  this  country  more  than  in  any  other. 

We  are  far  too  empirical  in  our  methods;  we 
have  no  national  system  through  which  all  effort 
can  be  co-ordinated  for  mutual  advantage,  and 
through  which  such  inequalities  as  may  arise  in 
our  everyday  working  conditions  may  be  satis- 
factorily adjusted. 

If  the  intellectual  leaders  of  each  group  can  be 
made  to  see  that  their  interests,  from  the  point  of 
view  of  individual  and  national  welfare,  in  all 
respects  are  identical,  one  of  the  great  obstacles 
which  stands  in  the  way  of  an  intimate  co-opera- 
tion would  be  removed,  and  the  way  cleared  for 
a  proper  dissemination  of  knowledge  in  matters 
economic.  And  this  knowledge  can  only  perco- 
late throughout  the  general  community,  starting 
from  the  leaders  of  the  political  groups  them- 
selves, who  must  first  of  all  signify  outwardly  a 
proper  understanding  of  their  responsibilities  in 
regard  to  the  advancement  of  general  welfare. 

The  contest  in  Marx's  view  between  the  capital- 
ist and  the  wage  labourer  dates  back  to  the  very 
origin  of  capital,  and  has  raged  on  throughout 
the  whole  manufacturing  period;  and  that  it  is  only 
since  the  introduction  of  machinery  that  the  work- 
man has  fought  against  the  instrument  of  labour 


ON   MODERN   MACHINERY       129 

itself;  that  he  revolts  against  this  particular  form 
of  the  means  of  production  as  being  the  material 
basis  of  the  capitalist  mode  of  production. 

Yet  if  we  study  our  economic  history  we  find, 
forsooth,  that  labour-power  to-day  is  paid  better 
wages  by  far,  and  has  much  shorter  hours,  than 
was  meted  out  to  labour-power  in  the  days  of 
Carl  Marx  himself.  And  these  improved  con- 
ditions and  environment  are  entirely  due  to  the 
improved  machines  which,  by  innuendo,  Marx 
suggests  labour-power  should  fight  against.  And 
so  it  comes  to  pass  that  the  prophet  himself  is 
disproved  by  experience  and  result. 

Marx  did  not  give  consideration  to  the  fact  that 
in  the  introduction  of  modern  machinery  we 
found  one  of  the  solutions  for  lightening  the  bur- 
dens of  labour  and  in  limiting  the  hours  worked 
per  day.  At  any  rate  he  gives  no  indication  that 
he  fully  appreciated  this  aspect  of  the  question. 

We  take  it  that  labour  not  only  desires  re- 
munerative employment,  but  a  certain  amount  of 
leisure  in  which  to  enjoy  nature  and  art,  and  the 
other  good  things  of  life.  How,  therefore,  can 
these  things  be  achieved  unless  efficient  and 
powerful  machinery  can  assume  the  burden 
hitherto  undertaken  by  man  himself? 

Further,  it  does  not  necessarily  follow  that 
because  an  article  of  utility  is  reduced  in  cost  by 
seventy-five  per  cent,  by  improved  machinery  that 


130  NATIONAL  SYSTEM  OF  ECONOMICS 

this  reduction  of  cost  is  effected  at  the  expense  of 
labour.  On  the  contrary,  it  widens  the  range  of 
employment  because  it  makes  possible  what  in 
other  circumstances  would  be  impossible.  It 
makes  possible  the  building  of  great  bridges, 
high-power  locomotive  machinery  and  steam- 
ships, facilitates  transportation,  increases  the  com- 
fort of  travelling,  makes  home  life  more  of  a 
pleasure,  particularly  to  the  women,  has  brought 
into  public  utility  electricity,  the  telephone  and 
telegraph,  and  last,  but  not  least,  has  brought  the 
granting  of  a  minimum  wage  to  every  able-bodied 
man  nearer  to  practical  realisation. 

The  application  of  science  to  industry,  whether 
in  the  sphere  of  chemistry  or  engineering,  has  com- 
pletely revolutionised  thought,  inasmuch  as  it  has 
substituted  investigation  and  accuracy  for  intuition 
and  empirical  methods.  The  result  of  this  is,  of 
course,  an  accession  of  problems,  subversive  and 
constructive,  particularly  in  the  sphere  of  organised 
labour,  of  an  absolutely  unlimited  inquisitiveness 
and  a  belief  in  the  importance  of  evidence. 

But  if  these  characteristics  be  understood  and 
appreciated  in  the  discourse  we  have  entered  upon, 
and  a  disposition  shown  or  manifested  by  those 
concerned  to  understand  them,  it  will  go  far  to 
clear  the  way  to  a  proper  understanding  between 
capital,  labour  and  management.  We  cannot 
afford  to  allow  these  forces  to  drift  forward  in  the 


ON   MODERN   MACHINERY       131 

world  as  an  incoherent  mass  and  persist  in  refusing 
to  understand  the  mode  of  thought  which  inspires 
each  force.  Capital,  labour,  and  management 
should  be  brought  to  realise  that  National  Eco- 
nomics based  on  freedom  of  trade  is  a  definite 
science;  and  that  co-operation,  knowledge  and  an 
appreciation  of  the  theory  of  moral  sentiment  are 
the  keys  to  the  solution  of  many  of  the  difficulties 
which  confront  them  at  the  moment;  and  that  such 
difficulties  are  not, as  many  believe,  insurmountable. 


CHAPTER    VI 

THE   SOLUTION   OF  THE   LABOUR 
PROBLEM 

As  we  have  previously  indicated,  we  are  some- 
what conscious,  notwithstanding  our  criticism  of 
Marx  as  an  economist,  of  the  evolution  which 
he  had  in  mind.  And  while  we  are  of  the  opinion 
that  he  was  deductive  in  his  theories,  we  believe 
he  was  a  better  student  of  philosophy  than  he  was 
of  political  economy. 

Marx  perceived  himself  that  the  problem  was 
one  of  moral  sentiment,  and  if  we  examine  his 
propositions  or  his  observations  from  this  stand- 
point, leaving  out  his  platitudes  and  peculiar 
theories,  we  shall  begin  to  see  daylight  and  com- 
prehend the  objective  he  was  aiming  at.  We 
should  certainly  be  doing  him  more  justice. 

One  of  the  really  good  points  which  he  makes 
is  as  follows — 

"  The  value  of  labour-power  is  determined,  as 
in  the  case  of  every  other  commodity,  by  the 
labour-time  necessary  for  the  production,  and  con- 

13* 


SOLUTION  OF  LABOUR  PROBLEM     133 

sequently  also  the  reproduction,  of  this  special 
article.  So  far  as  it  has  value,  it  represents  no 
more  than  a  definite  quantity  of  the  average  labour 
of  society  incorporated  in  it.  Labour-power  exists 
only  as  a  capacity,  or  power  of  the  living  individual. 
Its  production  consequently  presupposes  his  exist- 
ence. Given  the  individual,  the  production  of 
labour-power  consists  in  his  reproduction  of  him- 
self or  his  maintenance.  For  his  maintenance  he 
requires  a  given  quantity  of  the  means  of  sub- 
sistence. Therefore  the  labour-time  requisite  for 
the  production  of  labour-power  reduces  itself  to 
that  necessary  for  the  production  of  those  means 
of  subsistence;  in  other  words,  the  value  of  labour- 
power  is  the  value  of  the  means  of  subsistence 
necessary  for  the  maintenance  of  the  labourer. 
Labour-power,  however,  becomes  a  reality  only  by 
its  existence;  it  sets  itself  in  action  only  by  work- 
ing. But  thereby  a  definite  quantity  of  human 
muscle,  nerve,  brain,  etc.,  is  wasted,  and  these 
require  to  be  restored.  This  increased  expenditure 
demands  a  larger  income.  If  the  owner  of  labour- 
power  works  to-day,  to-morrow  he  must  again  be 
able  to  repeat  the  same  process  in  the  same  con- 
ditions as  regards  health  and  strength.  His  means 
of  subsistence  must  therefore  be  sufficient  to  main- 
tain him  in  his  normal  state  as  a  labouring  indi- 
vidual. His  natural  wants,  such  as  food,  clothing, 
fuel,  and  housing  vary  according  to  the  climate 
and  other  physical  conditions  of  his  country.  On 
the  other  hand,  the  number  and  extent  of  his  so- 
called  necessary  wants,  as  also  the  modes  of  satisfy- 


134  NATIONAL  SYSTEM  OF  ECONOMICS 

ing  them,  are  themselves  the  product  of  historical 
development,  and  depend  therefore  to  a  great 
extent  on  the  degree  of  civilisation  of  a  country, 
more  particularly  on  the  conditions  under  which, 
and  consequently  on  the  habits  and  degree  of  com- 
fort in  which,  the  class  of  free  labourers  has  been 
formed.  In  contradistinction,  therefore,  to  the 
case  of  other  commodities,  there  enters  into  the 
determination  of  the  value  of  labour-power  an 
historical  and  moral  element.  Nevertheless,  in  a 
given  country,  at  a  given  period,  the  average  quan- 
tity of  the  means  of  subsistence  necessary  for  the 
labourer  is  practically  known. 

"  The  owner  of  labour-power  is  mortal.  If, 
then,  his  appearance  in  the  market  is  to  be  con- 
tinuous, and  the  continuous  conversion  of  money 
into  capital  assumes  this,  the  seller  of  labour-power 
must  perpetuate  himself,  c  in  the  way  that  every 
living  individual  perpetuates  himself,  by  pro- 
creation.' The  labour-power  withdrawn  from  the 
market  by  wear  and  tear  and  death  must  be  con- 
tinually replaced  by,  at  the  very  least,  an  equal 
amount  of  fresh  labour-power.  Hence  the  sum 
of  the  means  of  subsistence  necessary  for  the  pro- 
duction of  labour-power  must  include  the  means 
necessary  for  the  labourer's  substitutes,  i.  e.  his 
children,  in  order  that  this  race  of  peculiar  com- 
modity-owners may  perpetuate  its  appearance  in 
the  market. 

"  In  order  to  modify  the  human  organism,  so 
that  it  may  acquire  skill  and  handiness  in  a  given 
branch  of  industry,  and  become  labour-power  of  a 


SOLUTION  OF  LABOUR  PROBLEM     135 

special  kind,  a  special  education  or  training  is 
requisite,  and  this,  on  its  part,  costs  an  equivalent 
in  commodities  of  a  greater  or  less  amount.  This 
amount  varies  according  to  the  more  or  less 
complicated  character  of  the  labour-power.  The 
expenses  of  this  education  (excessively  small  in  the 
case  of  ordinary  labour-power)  enter  pro  tanto  into 
the  total  value  spent  in  its  production. 

"  The  value  of  labour-power  resolves  itself  into 
the  value  of  a  definite  quantity  of  the  means  of 
subsistence.  It  therefore  varies  with  the  value 
of  these  means  or  with  the  quantity  of  labour 
requisite  for  their  production."  l 

The  point  is  good.  Every  able-bodied  man 
who  is  given  employment  or  whose  services  are 
desired  in  the  development  of  production  ought 
to  have  a  wage  of  a  size  sufficient  to  enable  him  to 
purchase  the  means  of  subsistence;  in  other  words, 
a  minimum  wage  should  be  legalised  by  law. 
In  this  particular  instance  the  truth  of  Marx's 
assertion  cannot  be  denied  that  the  value  of  labour- 
power  is  the  value  of  the  means  of  subsistence 
necessary  for  the  maintenance  of  the  labourer;  and 
that  labour-power  becomes  a  reality  only  by  its 
existence  and  reproduction.  The  worker's  means 
of  subsistence  should  be  sufficient  to  enable  him 
to  maintain  his  normal  state  of  health,  wife  and 
family  (if  any),  and  satisfy  their  wants  in  clothing, 
fuel,  food  and  housing. 

1  Das  Kapital,  p.  149-151. 


136  NATIONAL  SYSTEM  OF  ECONOMICS 

The  more  closely  this  proposition  is  examined, 
the  more  will  the  truth  of  it  be  conceded;  we  have 
to  ensure  the  maintenance  of  healthy  parents,  both 
in  body  and  mind,  if  for  no  other  reason  than 
reproduction  alone;  we  have  to  provide  for  a  con- 
tinuous supply  of  efficient  and  healthy  labour- 
power  if  we  are  to  hold  our  own  in  general  com- 
petition. And  this  general  proposition  applies  as 
well  to  the  requirements  of  the  Army  and  Navy 
in  man-power.  Even  if  we  reduce  this  general 
proposition  to  one  of  sordid  materialism,  apart 
from  the  aspect  of  moral  sentiment  attached  to  it, 
it  will  surely  be  generally  conceded  that  the 
stronger  we  are  as  a  race,  mentally  and  physically, 
so  much  stronger  shall  we  be  for  offensive  and 
defensive  purposes;  efficient  man-power  is  the 
kernel  of  all  movements  either  for  military  or 
industrial  purposes,  and  the  measure  of  our  success 
can  only  be  the  measure  of  our  strength  in  these 
respects. 

If,  then,  this  general  proposition  be  accepted, 
and  it  will  be  difficult  not  to  do  so,  what  must  we 
do  to  give  it  effect?  The  only  thing  to  do  is  to 
concede  that  every  able-bodied  man  of  eighteen 
years  and  over  shall  not  be  employed  by  any 
person,  company  or  firm,  at  a  wage  less  than 
twenty-five  shillings  per  week.  Although  in  con- 
sequence of  the  war  the  purchasing  value  of  the 
sovereign  may  have  been  reduced  to  twelve  shil- 


SOLUTION  OF  LABOUR  PROBLEM     137 

lings,  as  compared  with  its  pre-war  value,  yet  we 
believe  that  after  the  war  its  purchasing  value  will 
increase  in  like  proportion,  and  for  this  reason  we 
are  not  disposed  to  recommend  any  larger  amount 
than  twenty-five  shillings,  although  we  are  aware 
of  the  fact  that  the  Labour  Party  would  like  to  see 
a  minimum  wage  of  thirty  shillings  established. 
But  as  all  evolutionary  processes  must  necessarily 
be  of  slow  growth,  we  recommend  that  the  limit 
should  not  exceed  twenty-five  shillings  per  week; 
the  main  object  for  the  present  being  to  secure  the 
establishment  of  the  principle. 

With  regard  to  the  position  of  juvenile  and 
female  labour,  it  will  be  difficult  to  make  any 
regulation  as  to  wages  in  their  case,  but  it  will, 
we  think,  be  conceded  that  the  value  of  their 
services  in  the  labour  market  will  be  entirely 
regulated  by  the  standard  minimum  wage  for  adult 
male  labour;  one  will  be  a  reflection  of  the  other, 
so  that  their  position,  we  believe,  will  automatically 
improve  in  its  relation  to  the  other.  At  any  rate 
this  has  been  the  experience  gained  during  the 
present  war-demand  for  labour. 

As  regards  married  men  with  families,  the  same 
argument  applies;  not  only  that,  but  parents  could 
look  forward  to  the  future  with  more  confidence, 
realising  that  their  sons  would  each,  at  the  age  of 
eighteen  years,  be  in  a  position  to  contribute  twenty- 
five  shillings  to  the  family  revenue.  And  this 


138  NATIONAL  SYSTEM  OF  ECONOMICS 

confidence  would  tend  to  encourage  reproduction 
instead  of  restricting  it  as  at  present. 

If,  then,  the  proposal  be  considered  in  all  its 
aspects  there  is  much  to  be  said  in  favour  of  estab- 
lishing the  principle  of  the  minimum  wage. 


ON    THE    WORKING    DAY 

Now  let  us  consider  the  question  of  the  hours 
worked  per  day,  and  the  view  that  Marx  expresses 
upon  the  subject.  In  the  chapter  devoted  to  the 
working  day,  page  251,  Das  Kapital,  he  makes 
another  good  point  which  deserves  every  attention — 

uThe  capitalistic  mode  of  production  (essen- 
tially the  production  of  surplus-value,  the  absorp- 
tion of  surplus-labour)  produces  thus,  with  the 
extension  of  the  working-day,  not  only  the  de- 
terioration of  human  labour-power  by  robbing  it 
of  its  normal,  moral  and  physical  conditions  of 
development  and  function;  it  produces  also  the 
premature  exhaustion  and  death  of  this  labour- 
power  itself.  It  extends  the  labourer's  time  of 
production  during  a  given  period  by  shortening 
his  actual  life-time. 

"  But  the  value  of  the  labour-power  includes 


SOLUTION  OF  LABOUR  PROBLEM    139 

the  value  of  the  commodities  necessary  for  the 
reproduction  of  the  worker,  or  for  the  keeping  up 
of  the  working  class.  If,  then,  the  unnatural 
extension  of  the  working-day  that  capital  neces- 
sarily strives  after,  in  its  unmeasured  passion  for 
self-expansion,  shortens  the  length  of  life  of  the 
individual  labourer,  and  therefore  the  duration  of 
his  labour-power,  the  forces  used  up  have  to  be 
replaced  at  a  more  rapid  rate  and  the  sums  of  the 
expenses  for  the  reproduction  of  labour-power  will 
be  greater;  just  as  in  a  machine  the  part  of  its 
value  to  be  reproduced  every  day  is  greater  the 
more  rapidly  the  machine  is  worn  out.  It  would 
seem,  therefore,  that  the  interest  of  capital  itself 
points  in  the  direction  of  a  normal  working  day." 

There  has  been  a  considerable  shortening  of  the 
working  day  since  Carl  Marx  first  wrote  upon  the 
subject,  yet  we  believe  that  if  organised  labour 
were  to  abandon  the  "  ca'  canny"  policy,  i.e. 
restriction  of  output,  employers  generally  would 
be  prepared  to  concede  the  principle  of  a  nine-hour 
working  day,  i.  e.  fifty  hours  per  week,  and  an 
eight-hour  day,  i.  e.  forty-four  hours  per  week, 
for  hazardous  and  precarious  employments.  We 
have  discussed  this  matter  with  important  en- 
gineering employers  on  the  Clyde  and  on  the 
Tyne,  and  without  exception  they  have  all 
expressed  themselves  in  this  manner. 


140  NATIONAL  SYSTEM  OF  ECONOMICS 

One  gentleman  in  particular  admitted  that  the 
worker,  he  considered,  was  entitled  to  a  share  of 
the  good  things  of  this  life,  and  that  he  should  be 
afforded  a  certain  amount  of  leisure  time  for 
study  or  to  enjoy  the  beauties  of  nature  and  art, 
in  order  to  break  the  monotony  created  by  con- 
tinuous environment,  and  always  performing  the 
same  operation.  Not  only  that,  but  he  believed 
that  in  affording  the  working  man  a  little  leisure 
he  would  take  a  more  intelligent  interest  in  the 
means  of  production,  and  possibly  in  the  methods 
employed.  There  is  much  to  be  said  in  support 
of  this  evidence,  inasmuch  as  the  variety  of  life 
which  such  a  system  would  introduce,  and  the 
break  in  constant  mental  application,  would  enable 
the  workman  to  enjoy  work  and  look  upon  it  as  a 
pleasure.  Or  they  would  probably  come  to  agree 
with  Epicurus,  who  said  "  that  man,  being  born 
for  action,  his  happiness  must  consist,  not  merely 
in  the  agreeableness  of  his  passive  sensations,  but 
also  in  the  propriety  of  his  active  exertions." 

And  it  would  perhaps  be  as  well  to  say  that, 
according  to  the  same  authority,  which  demon- 
states,  again,  that  there  is  nothing  new  under  the 
sun,  showing  that  nature  is  at  all  times  the  same, 
uThe  primary  objects  of  natural  desire  consisted 
in  bodily  pleasure  and  pain,  and  in  nothing  else." 
But  according  to  Plato,  Aristotle  and  Zeno  there 
were  many  other  objects  such  as  knowledge,  such 


SOLUTION  OF  LABOUR  PROBLEM     141 

as  the  happiness  of  our  relations,  of  our  friends,  of 
our  country,  which  were  ultimately  desirable  for 
their  own  sakes. 

It  has  never  been  quite  clear  to  us  why  em- 
ployers should  always  persist  in  bringing  their 
workmen  out  of  bed  to  start  work  at  six  o'clock 
in  the  morning  and  then  send  them  home  again  at 
seven-thirty  for  breakfast.  We  should  like  to  see 
the  breakfast  hour  abolished  altogether.  If  the 
workman  has  to  travel  for  three-quarters  of  an 
hour  to  his  place  of  employment  from  home,  it 
means  that  he  has  to  get  up  at  five  o'clock  in  the 
morning.  It  also  means,  perhaps,  that  his  wife 
will  have  to  be  troubled  at  that  hour  to  make  a  cup 
of  tea  for  her  husband  as  a  sort  of  stimulant  until 
the  regular  breakfast  hour. 

The  fatigue  and  irritation  which  this  regulation 
must  necessarily  incur  must  surely  make  for  in- 
efficiency in  production.  It  cannot  be  expected 
that  the  mentality  of  the  workman  can  have  the 
necessary  consistency  or  activity  for  concentration 
upon  his  work  if  he  has  to  be  subject  to  such 
unbusinesslike  regulations. 

Apart  from  the  foregoing,  the  maintenance  of 
the  breakfast  hour  must  assuredly  increase  the  over- 
head or  standing  charges  of  the  factory,  and  make 
for  decrease  of  output  for  the  following  reasons : 
In  the  first  instance  the  workman,  not  having  had 
anything  to  eat  between  the  hours  of  five  and 


1 42  NATIONAL  SYSTEM  'OF  ECONOMICS 

seven-thirty,  is  certain  to  be  in  his  weakest  con- 
dition, and  for  want  of  adequate  rest  have  a  dull 
brain. 

In  addition  to  this  it  usually  takes  five  or  ten 
minutes  for  the  plant  to  start  up  and  get  into  full 
swing,  which  has  to  be  interrupted  at  the  breakfast 
hour.  It  may  also  be  taken  for  granted  that,  in 
consequence  of  the  workman's  natural  desire  to  get 
home  for  breakfast  to  have  something  to  eat,  he  is 
watching  the  clock  for  five  or  ten  minutes  before 
the  adjournment  instead  of  the  work  he  may 
have  in  hand.  This  time  is  all  paid  for  by 
the  employers  but  lost  to  them;  in  addition  to 
which  they  have  the  cost  of  the  motive  power 
to  pay  which  has  to  be  maintained  during  the 
interval. 

When  the  workman  returns  from  breakfast 
another  five  or  ten  minutes  is  lost  in  starting  up 
for  the  second  period  of  the  day's  work;  so  that  if 
everything  is  taken  into  consideration  it  would 
seem  to  be  in  the  employers'  interest  to  abolish 
the  breakfast  hour  altogether,  and  have  one  break 
per  day  only;  they  should  arrange  that  their  em- 
ployees shall  commence  work  not  earlier  than 
8  a.m.,  continuing  until  12.30,  allowing  one  hour 
for  lunch,  resuming  again  at  1.30,  and  finishing 
at  6  p.m.  On  Saturday  the  hours  should  run 
from  8  to  i  p.m. 

The  foregoing  time-table  would  provide  a  fifty- 


SOLUTION  OF  LABOUR  PROBLEM     143 

hour  working  week,  which  is  the  least  that  can  be 
asked  by  the  worker,  and  the  most  that  ought  to 
be  asked  by  the  employer. 

In  hazardous  and  precarious  occupations  the 
hours  of  employment  should  be  from  8.30  to 
12.30,  and  1.30  to  5.30,  terminating  for  the  week 
at  12.30  on  Saturday,  making  in  all  a  44-hour 
working  week. 

We  feel  very  confident  that  if  the  foregoing 
reforms  could  be  effected  it  would  make  not  only 
for  an  increase  in  efficiency  in  production  and 
inventive  faculty,  but  also  make  the  workman 
more  friendly  disposed  towards  co-operating  with 
his  employer  in  all  matters  affecting  the  develop- 
ment of  national  industry. 

Some  people  may  say,  of  course,  that  in  con- 
ceding the  principle  of  a  minimum  wage  and  a 
limited  working  day  we  shall  run  the  risk  of  losing 
our  position  in  the  international  market  in  conse- 
quence of  the  increase  in  cost  of  production,  and 
of  the  longer  hours  and  lower  wages  accepted  by 
labour  in  foreign  countries.  This  would  be  true 
if  organised  labour  were  to  persist  in  maintaining 
the  "  ca'  canny  "  policy,  i.  e.  restriction  of  output, 
and  the  policy  of  Laissez  faire,  Laissez  passer,  so 
fondly  supported  by  Liberals  and  the  Cobdenite 
school  of  thought.  But  we  think  it  would  have 
the  reverse  action  if  organised  labour,  manage- 
ment and  capital  were  to  co-operate  and  agree  to 


144  NATIONAL  SYSTEM  OF  ECONOMICS 

a  National    System  of  Economics   as   enunciated 
herein. 

It  follows,  of  course,  that  if  the  leaders  of  organ- 
ised labour  were  not  to  respond  to  the  course 
herein  advocated,  i.  e.  by  abolishing  and  prohibit- 
ing all  restrictive  measures  to  output,  the  Trades 
Dispute  Act,  and  the  Free  Trade  policy,  no  agree- 
ment could  be  possible.  Not  only  that,  but  even 
if  an  agreement  were  to  be  concluded  on  the  basis 
of  this  discussion  and  subsequently  broken,  it 
should  be  provided  by  Act  of  Parliament  that  the 
respective  positions  of  the  parties  concerned  should 
revert  to  the  status  quo  ante.  Provisions  of 
this  kind  would  protect  the  welfare  and  general 
interests  of  the  country,  and  no  agreement  should 
be  concluded  without  them. 


ON    SURPLUS    VALUES 

To  organised  labour  we  have  one  more  word 
to  say,  and  it  is  this :  that  the  theory  advanced  by 
Carl  Marx  upon  the  subject  of  surplus  values  is 
erroneous.  It  is  the  possibility  of  creating  surplus 
values  in  production  that  keeps  the  whole  of 
industry  going;  and  for  as  many  people  who  ulti- 


SOLUTION  OF  LABOUR  PROBLEM    145 

mately,  by  hard  effort  and  enterprise,  secure  what 
Marx  is  pleased  to  term  a  surplus  value,  there  are 
as  many  who  lose  the  capital  with  which  they 
embarked  on  the  enterprise  to  obtain  it.  One 
balances  the  other,  and  it  is  the  constant  struggle 
for  perfection  that  keeps  us  going. 

What  we  as  a  nation  suffer  from  most  to-day 
is  the  lack  of  enterprise  and  of  thoroughly  trained 
young  business  men;  but  if  there  was  no  possibility 
of  rewarding  enterprise  and  energy  by  surplus 
values,  how  would  it  be  possible  to  obtain  them? 
As  a  matter  of  practical  politics,  therefore,  we 
regard  Marx's  flowery  phrase  of  "  surplus  values  " 
merely  as  a  figure  of  speech,  and  a  false  and 
misleading  theory. 

In  this  connection  we  are  glad  to  be  able  to 
record  that  Mr.  Samuel  Gompers,  the  well-known 
leader  of  organised  labour  in  America,  expresses 
very  much  the  same  view  on  the  subject.  After 
an  extended  tour  of  Europe,  undertaken  a  few 
years  before  the  war,  and  an  investigation  of  the 
conditions  of  European  labour,  he  wrote  several 
articles  for  the  American  Federationist,  extracts 
from  which  we  quote  as  follows.  The  first  is  a 
scathing  reply  to  an  invitation  which  he  received 
from  Mr.  Robert  Hunter,  a  leading  American 
Socialist,  to  join  the  Socialist  movement. 

Mr.  Gompers,  who  is  the  greatest  living  Ameri- 
can authority  on  the  subject,  declared  that 


146  NATIONAL  SYSTEM  OF  ECONOMICS 

American  workmen  would  have  nothing  to  do  with 
the  Marxian  movement,  and  gave  as  his  reason 

'  D 

the  continual  improvement  of  the  economic  posi- 
tion of  the  United  States.  He  asserted  unequivo- 
cally that  the  wages  of  American  workmen  were 
rising  faster  than  the  cost  of  living,  and  his  attack 
on  the  Marxian  theories  may  be  considered  one 
of  the  most  comprehensive  ever  made  on  behalf  of 
American  labour.  In  part  it  is  as  follows — 

"  See  what  Marx  believed  was  to  be  the  fate 
of  the  wage-workers.  c  Deeper  and  deeper '  they 
were  to  sink,  c  pauperism  '  developing  c  even  more 
rapidly  than  population  or  wealth.'  This  was  the 
logical  outcome  of  Marx's  doctrine  of  c  surplus 
values,'  which,  in  a  nutshell,  is  that  '  after  the 
labourer  has  been  paid  the  wage  necessary  for  the 
subsistence  of  himself  and  family,  the  surplus  of 
his  labour  is  appropriated  by  the  capitalist  who 
exploits  it.'  Marx's  c  misery,  oppression,  slavery, 
degradation,  exploitation '  of  the  masses  are  essen- 
tial factors  in  the  intolerable  social  conditions 
which  must  precede  the  c  bursting  asunder '  of 
capitalism.  .  .  .  Without  the  progressive  im- 
poverishment, degeneration  and  hopeless  economic 
enserfdom  of  the  masses  of  working  men,  Marx's 
c  crack  o'  doom  '  is  causeless,  illogical,  anti-natural, 
a  devil's  miracle.  .  .  . 

"  When  the  foundation  of  Marx's  theories — 
the  idea  of  surplus  value — is  demonstrably  an 
error;  when,  on  the  contrary,  the  possibilities  for 


SOLUTION  OF  LABOUR  PROBLEM     147 

the  arrival  of  the  working  classes  at  a  general  plane 
that  will  permit  the  full  development  of  manhood 
become  certainties,  his  ingeniously  worked  out 
correlatives  of  this  first  principle  have  no  more 
value  than  the  imaginings  of  any  other  guesser 
at  probabilities  for  the  future.  His  time-wage 
system,  his  co-operative  commonwealth,  and  espe- 
cially his  notions  as  to  religion  and  the  family  then 
take  their  place  with  the  fanciful  divagations  of 
Jules  Verne  and  H.  G.  Wells  when  fashioning 
their  perfect  new  worlds  out  of  this  unlovely  old 
one.  You,  Mr.  Hunter,  and  your  school  of 
observers,  and  we  and  other  working  class  ob- 
servers, see  the  phenomena  of  social  changes 
through  different  eyes.  .  .  .  We  solemnly  assure 
you,  Mr.  Hunter,  that  we  have  not  hitherto  heard 
your  news  regarding  the  thousand  new  great  trusts 
and  monopolies.  .  .  . 

"  One  great  set  of  facts,  on  the  contrary,  that 
we  have  observed,  reading  them  by  decades,  is  that 
millions  of  American  wage-workers  now  have  a 
shorter  work-day  by  several  hours  than  they  had 
thirty  years  ago,  and  that  the  present  organisation 
of  employing  capital  has  almost  wholly  eliminated 
the  uncertainty  formerly  experienced  by  wage- 
workers  for  small  employers  as  to  getting  their 
pay  when  due.  Constantly  increasing  wages,  on 
the  whole,  during  the  present  generation,  con- 
siderably exceeding  the  rise  in  average  prices 
meantime,  can  be  shown  by  the  records  of  the 
wage-scales  for  the  workers,  organised  and  un- 
organised. .  .  .  Looking  over  our  whole  broad 


148  NATIONAL  SYSTEM  OF  ECONOMICS 

land,  there  was  never  a  greater  proportion  of  home 
owners,  never  a  higher  level  of  comfort,  among 
America's  workers.  And  it  is  to  be  remembered 
that  American  labour  has  had  to  bear  the  burden 
of  competition,  with  an  immigration  that  in  the 
last  decade  has  brought  to  the  population  a  net 
increase  of  at  least  five  million  labourers,  nearly 
all  so  poor  on  arrival  that  a  month's  idleness  would 
have  brought  them  face  to  face  with  starvation. 

"  The  death-rate,  that  sure  measure  of  misery, 
has  steadily  decreased.  Only  three  children  of  the 
poor  die  now  where  five  died  fifty  years  ago,  and 
for  the  trades  a  continually  advancing  longevity 
is  shown  by  the  insurance  tables.  .  .  .  Mr.  Hunter's 
reference  to  the  Socialists  helping  c  to  build  up 
the  great  trade  union  movement '  brings  us  to  say 
*  Heaven  save  us  from  such  friends.'  ...  So  long 
as  you  really  teach  the  value  of  education,  of  per- 
sonal thrift,  voluntary  co-operative  effort,  organ- 
ised self-help,  the  defence  of  political  rights,  the 
merits  of  a  thoroughgoing  democracy,  the  benefits 
of  good  administration,  and  the  abolition  of  eco- 
nomic privilege,  you  are  assisting  in  demolishing 
Marx's  Socialism.  .  .  .  Mr.  Hunter,  the  time 
may  be  at  hand  for  you  Socialists  to  make  another 
little  change  or  two.  You  may  be  able  to  play  at 
turning  back  the  clock,  but  you  cannot  turn  back 
time  itself.  You  should  acknowledge  yourselves 
opportunists  at  present,  to  the  extent  of  nine- 
tenths,  and  hide  the  other  little  tenth,  your  uni- 
versal slave-pen  co-operative  commonwealth,  far 
back  on  the  shelf  among  the  unessentials  to  eco- 


SOLUTION  OF  LABOUR  PROBLEM     149 

nomic  justice,  where  the  wise  ones  among  you 
keep  Marx's  c  frank  and  avowed  materialism '  and 
Babel's  <  Woman.'  " 

In  another  most  authoritative  and  instructive 
Article  on  the  much-argued  comparative  cost  of 
living  in  the  United  States  and  Europe,  and  the 
low  rate  of  wages  paid  in  Great  Britain,  Gompers 
wrote  as  follows — 

"  Earnings  in  England,  however,  cannot  be 
based  on  weekly  wage-scales;  unemployment,  vary- 
ing as  to  the  individuals  involved,  is  now  so  bad 
as  to  be  spoken  of  as  a  settled  national  feature  in 
industry.  The  Inspector-General  of  the  Army 
was  quoted  at  Ipswich  (at  the  Trade  Union  Con- 
gress) as  mentioning  in  his  last  annual  report  that 
ninety  out  of  every  hundred  men  enlisting  in  the 
Army  had  given  unemployment  as  their  reason 
for  becoming  soldiers.  .  .  .  My  facts  indicate  that 
money  wages  in  America  in  many  trades  are  double 
those  paid  abroad. 

"  But  the  cost  of  living? 

"The  European  working  classes  have  ever 
before  them  the  struggle  for  a  barely  decent  living. 
Their  necessary  annual  family  <  budget '  comprises 
plain  and  cheap  food,  which,  on  the  average,  takes 
forty  to  sixty-five  per  cent,  of  the  entire  outlay, 
quarters  in  either  an  c  industrial '  or  c  slum '  dis- 
trict requiring  twenty  to  thirty-five  per  cent.,  and 
clothing  ten  per  cent,  or  more.  Mentally  con- 
templating the  many  cities  I  visited,  and  having 


150  NATIONAL  SYSTEM  OF  ECONOMICS 

in  mind  the  conversations  I  had  with  working  men 
who  lived  both  in  America  and  in  Europe,  I  believe 
I  may  assert  that  whether  the  cost  of  living  in 
Europe  or  America  is  greater  to  the  working  man 
depends  entirely  on  the  standard  of  living  he 
adopts  while  in  America. 

"If  he  voluntarily  lives  the  life  of  self-denial 
that  he  compulsorily  lived  in  his  native  land,  his 
outlay  in  money  will  remain  about  the  same. 
Even  then  he  will  hardly  be  able  to  escape  gaining 
something  from  the  superior  supply  of  the  good 
things  of  life  in  America.  .  .  .  Living  is  cheap  to 
the  wage-worker  in  Europe  only  because  he  does 
without  what  in  America  soon  becomes  a  neces- 
sity to  him — food  in  good  quantity  and  quality, 
presentable  clothes  among  his  aspiring  fellow- 
workmen  and  their  families,  and  a  comfortably 
furnished  home  in  quarters  responding  to  his 
awakened  desires  for  equality  with  his  American 
neighbours,  and,  in  general,  a  larger  and  freer  life. 

"  *  How  often  do  these  people  eat  meat?  '  is  a 
question  the  American  in  Europe  finds  himself 
asking  when  looking  about  among  wage-workers. 
Meat  is  usually  from  twenty-five  to  a  hundred  per 
cent,  higher  in  price  than  in  the  United  States.  .  .  . 
The  immigrant  coming  to  America  finds  that  if  he 
can  buy  in  quantity,  and  in  cases  where  he  need 
not,  his  flour,  fuel,  potatoes,  oil,  sugar,  coffee, 
salt — the  essentials  of  his  plain  table — all  cost  less 
than  they  ordinarily  do  in  the  land  he  left.  The 
cheapness  and  abundance  of  many  varieties  of 
fruits  and  of  our  melons  and  tomatoes  is  a 


SOLUTION  OF  LABOUR  PROBLEM     151 

surprise  to  him.  Closely  after  the  most  pressing 
necessities  comes  a  line  of  things  cheaper  than 
in  Europe — cotton  clothing,  including  overalls, 
jumpers,  shoes.  Access  to  good  water  renders 
expenditure  for  alcoholic  drinks  less  common. 

"  The  cheapness  of  good  amusements  in  America 
deserves  more  attention  than  has  been  given  the 
subject  by  the  professional  investigator;  it  is  a 
social  factor  having  an  enormous  influence  on  the 
tastes  and  education  of  the  working-class  public. 
The  possibility  of  regarding  outlay  for  amusements 
as  one  of  the  regular  items  in  family  expenses  is 
an  indication  of  the  working-class  standard  of 
living.  How  the  wage-earners  dress  themselves 
is  not  so  much  a  question  of  the  cheapness  of 
clothing  as  it  is  of  what  is  left  over  for  this  pur- 
pose, after  food,  shelter,  and  other  unavoidable 
family  needs  have  been  provided  for." 

It  may  occasion  surprise  to  some  people  to  note 
the  strong  difference  of  opinion  on  matters  eco- 
nomic which  seems  to  exist  between  the  leaders 
of  American  organised  labour  and  British  organ- 
ised labour,  but  if  the  problem  is  examined  a 
little  more  deeply  the  reason  will  soon  be  found. 


-152  NATIONAL  SYSTEM  OF  ECONOMICS 

THE  THEORY  OF  AMERICAN  PROTECTION  FROM 
THE  POINT  OF  VIEW  OF  AMERICAN  ORGAN- 
ISED LABOUR 

In  order  to  fully  appreciate  the  point  of  view 
so  ably  advanced  by  Gompers  on  behalf  of 
American  organised  labour  we  have  to  examine 
the  theory  of  American  Protection  from  the 
standpoint  of  American  labour. 

The  father  of  the  American  Protectionist  school 
was  Senator  Thomas  B.  Reed,  who,  we  believe, 
was  the  first  person  to  perceive  the  basis  through 
which  the  wealth  and  welfare  of  nationalities  could 
best  be  developed,  and  upon  which  a  proper 
understanding  with  organised  labour  was  possible. 

There  was  no  greater  exponent  of  the  subject 
than  Reed,  and  we  have  to  thank  Mr.  Moreton 
Frewen,  one  of  the  most  distinguished  advocates 
of  the  new  school  of  economics  in  Great  Britain, 
for  introducing  him  to  this  country.  Mr.  Frewen 
wrote  an  article  in  the  Nineteenth  Century  for 
November  1910,  on  the  theory  of  American  Pro- 
tection, and  had  it  received  more  consideration 
and  attention  at  the  time  it  was  written,  we  believe 
it  might  have  tempered  the  subsequent  bitter 
political  discussions  on  the  subject  of  tariffs,  to 
the  advantage  of  the  country. 

Although  we  do  not  believe  in  the  American 
theory  of  high  tariffs,  nevertheless  the  views 


SOLUTION  OF  LABOUR  PROBLEM     153 

advocated  by  Reed  apply  to  the  principles  under- 
lying the  theory  of  low  tariffs  equally  as  much 
as  they  do  to  the  principles  underlying  the  theory  of 
high  tariffs;  in  view  of  this  we  have  no  hesitation 
in  supporting  Reed's  views  and  in  submitting  them 
for  due  consideration,  particularly  as  they  are  also 
supported  by  the  leaders  and  followers  of  organised 
labour  in  America. 

In  the  Essay  referred  to  above,  which  appeared 
in  the  Nineteenth  Century  magazine,  Mr.  Frewen 
began  with  the  following  extract  from  a  speech 
made  by  Mr.  Reed  in  the  House  of  Representa- 
tives, Washington,  May  1888,  as  follows— 

"  Perhaps  the  best  argument  I  can  make  for 
Protection  is  to  state  what  it  is  and  the  principles 
on  which  it  is  founded. 

"  Man  derives  his  greatest  powers  from  his 
association  with  other  men,  his  union  with  his 
fellows.  Whoever  considers  the  human  being  as 
a  creature  alone,  isolated  and  separated,  and  tries 
to  comprehend  mankind  by  mathematically  adding 
these  atoms  together,  has  utterly  failed  to  com- 
prehend the  human  race  and  its  tremendous  mis- 
sion. Sixty  millions  even  of  such  creatures  with- 
out association  are  only  so  many  beasts  that  perish. 
But  sixty  millions  of  men  welded  together  by 
national  brotherhood,  each  supporting,  sustaining, 
and  buttressing  the  other,  are  the  sure  conquerors 
of  all  those  mighty  forces  of  Nature  which  consti- 
tute the  wealth  of  the  world.  The  great  blunder 

•o  > 


154  NATIONAL  SYSTEM  'OF  ECONOMICS 

of  the  Herr  Professor  of  Political  Economy  has 
been  that  he  treats  human  beings  as  if  every  man 
were  so  many  foot-pounds — such  and  such  a  frac- 
tion of  a  horse-power.  All  the  soul  of  man  he 
leaves  out. 

"  Think  for  a  moment  of  the  primordial  prin- 
ciple involved  in  the  question  I  now  ask.  Where 
does  wealth  come  from  ?  It  comes  from  the  power 
of  man  to  let  loose  and  yet  guide  those  elemental 
forces,  the  energy  of  which  is  infinite.  It  comes 
from  the  power  of  man  to  force  the  earth  to  give 
her  increase,  to  hold  in  the  bellying  sail  the  passing 
breeze,  to  harness  the  waterfall,  to  dam  the  great 
rivers,  to  put  bits  in  the  mouth  of  the  lightning. 
Foot-pounds  and  fractions  of  a  horse-power  will 
never  do  this.  It  takes  brains  and  the  union  of 
foot-pounds  and  fractions  of  a  horse-power  working 
harmoniously. 

"  For  a  nation  to  get  out  of  itself  or  out  of 
the  earth  all  the  wealth  there  is  in  both,  it  is  not 
necessary  for  that  nation  to  buy  cheap  or  sell  dear. 
That  concerns  the  individual  alone.  What  con- 
cerns the  nation  is  how  to  utilise  all  the  best  work 
there  is  in  man,  both  of  muscle  and  mind,  of  body 
and  soul,  in  the  great  enterprise  of  setting  in 
motion  the  ever  gratuitous  forces  of  nature.  How 
shall  you  get  out  of  all  your  people  their  full 
powers?  Right  here  is  precisely  the  dividing 
line.  The  *  let  alone  '  school  say,  Leave  individual 
man  to  his  own  devices.  The  Protectionist  school 
say.  Let  us  stimulate  combined  and  aggregated 
man  to  united  endeavour" 


SOLUTION  OF  LABOUR  PROBLEM     155 

The  italics  are  ours.  But  the  whole  quotation 
is  an  eloquent  dissertation  on  the  first  principles 
of  National  Economics  based  on  freedom  of 
trade. 

As  Mr.  Frewen  so  very  pointedly  remarked,  "  it 
may  seem  almost  ungracious  to  suggest  at  this 
late  date  that  the  theory  of  American  Protection — 
a  theory  which  has  created  and  largely  satisfied  a 
public  opinion  probably  the  most  exacting  and 
*  insurgent '  in  the  world — has  never  yet  been 
translated  for  us  by  our  Tariff  Reformers";  to 
which  we  might  add,  of  course,  our  Political  Eco- 
nomists and  leaders  of  organised  labour.  We 
can  fully  understand  why  the  Cobdenite  school 
of  thought  has  not  seen  fit  to  do  so,  but  the  reason 
why  this  study  should  have  been  ignored  by 
authoritative  opinion  in  this  country  is  inexplicable. 

Great  "  progress  to  reform  has,  indeed,  been 
made,  but  the  views  advanced  have  not  generally 
been  of  the  sort  to  dominate  the  almost  ineradicable 
prejudices  of  our  elder  men.  The  philosophy  of 
Protection — the  American  view  that  Protection  is 
good  in  itself,  and  not  merely  good  because  it 
creates  wealth — this  great  and  fertile  field  of 
research  is  as  yet  a  desert  to  our  explorers.  It 
requires,  however,  to  be  cultivated,  and  cultivated 
carefully  "  if  we  are  to  create  the  same  healthy 
and  illuminating  public  opinion  in  this  country  as 
exists  in  America;  nobody  can  honestly  suggest 


156  NATIONAL  SYSTEM  'OF  ECONOMICS 

that  industrial  problems  in  this  country  are  in 
reality  different  to  those  which  exist,  and  have 
existed,  in  America. 

Mr.  Frewen  claims  that  "  in  Reed's  view,  the 
problem  of  the  tariff  had  but  an  incidental  relation 
to  economics  and  to  the  problems  of  revenue. 
Protection  was  for  him  far  more  a  problem  in 
sociology  than  in  finance."  And  so  it  is.  "  Senator 
Reed,  drawling  and  cynical,  would  phrase  it  in 
some  such  words  as  these  :  "  This  is  a  rich  country, 
and  belongs  not  to  a  few,  but  to  us  all;  how  are 
we  going  to  distribute  wealth  as  we  produce  it, 
without  the  noise  and  distraction  of  gun-play? 
We  can  distribute  wealth  as  the  Socialist  advises 
by  tax  and  supertax;  this  is  discouraging  and  makes 
for  bad  blood  and  class  quarrels.  What  is  the 
alternative?  It  is  to  distribute  wealth  through 
wages.  Let  us  try  and  give  the  whole  sum  of 
things  produced,  one  year  with  another,  to  the 
wage-earner;  if  so,  we  shall  make  him  a  good 
citizen."  "  The  whole  sum,  Tom?  "  our  friend 
Senator  Jones  would  say  deprecatingly.  "  Yes," 
Reed  would  reply,  "  let  us  aim  even  at  that.  We 
shall  never  do  it,  because  they  are  smart  as  Ananias, 
many  of  these  capitalists,  and  will  keep  back  part 
of  the  price;  there  is  no  danger  of  our  getting  it 
all.  When  that  day  dawns  Protection  may  celebrate 
its  millennium." 

It  would,  of  course,  be  a  rather  one-sided,  and 


SOLUTION  OF  LABOUR  PROBLEM     157 

an  unfair,  proposition  that  all  the  reward  should 
be  given  to  labour  and  nothing  to  enterprise, 
management  and  capital.  As  Mr.  Frewen  re- 
marked, "  such  an  endeavour  would  seem  con- 
scienceless; Reed  was  a  man  impoverished  by 
splendid  success  in  the  public  service;  to  the  very 
end  of  that  service  he  was  almost  in  straitened 
circumstances;  he,  indeed,  might  have  said  what 
Agassiz  said  on  his  death-bed,  c  I  have  never  had 
the  time  to  get  rich.'  "  But  although  this  was 
Reed's  outlook  on  life  he  was,  nevertheless,  not 
unfair.  In  his  speech  on  the  Mills  Tariff  he  said — 

"  After  all,  it  is  this  exaggerated  idea  of  the 
profits  of  the  manufacturer  which  is  at  the  bottom 
of  the  Chairman's  feelings.  Whenever  I  walk 
through  the  streets  of  New  York  and  look  at  those 
brown  stone  palaces,  my  gorge  rises.  I  can  never 
understand  why  the  virtue,  which  I  know  is  on 
the  sidewalk,  is  not  also  rewarded.  I  do  not  feel 
kindly  to  the  class  inside.  It  is  good,  honest, 
high-minded  envy.  When  gentlemen  opposite 
have  the  same  feeling^  they  think  it  is  political 
economy." 

According  to  Mr.  Frewen,  "  Reed  believed  that 
national  prosperity  was  in  the  market-place.  It 
was  not  in  the  skinning  of  flints,  but  in  the  furious 
drive  onward  and  upward,  of  all — a  nation  em- 
ployed all  the  time  at  the  very  highest  wages  which 


158  NATIONAL  SYSTEM  OF  ECONOMICS 

the  wealth  created  and  to  be  distributed  would 
allow.  Such,  then,  being  the  foundation  of  Reed's 
National  Economy :  namely,  the  distribution  of 
wealth  through  high  wages,  how  did  he  begin  to 
build  ?  In  his  view  the  best  Government  was  that 
under  which  the  most  workers  got  the  most  wages. 
Reed  pointed  out  that  the  American  rate  of  wages 
was  quite  incompatible  with  unrestricted  free  im- 
ports, which,  by  pulling  down  prices,  must  reduce 
wages  also;  and  he  developed  this  proposition  as 
follows :  "  In  a  debate  on  the  Wilson  Tariff  Bill 
in  1894,  he  said  that  the  average  wages  paid  in 
America  were  one  dollar  and  sixty  cents  a  day 
(65.  6d.),  as  compared  with  a  dollar  a  day  (45.)  in 
England.  From  the  American's,  and  equally  from 
the  Englishman's,  wage  there  must  be  deducted 
daily  sixty  cents  (25.  6d.)  for  a  c  subsistence 
ration ' — for  the  mere  fuel  and  oil  for  the  human 
machine.  So  that,  after  his  day's  work,  the 
American  had  a  hundred  cents  and  the  Briton  forty 
cents  to  go  shopping  with.  Since  that  speech  was 
made  sixteen  years  ago  the  rate  of  American  wages 
has  very  greatly  advanced.  It  is  quite  safe  to  say 
that  to-day  some  thirty  million  American  workers 
have  in  hand  every  night,  after  their  daily  bread 
is  paid  for,  far  more  than  thirty  million  dollars  for 
their  shopping.  In  other  words,  over  and  above 
the  actual  necessaries  of  life,  the  American  work- 
ing classes  have  two  thousand  millions  sterling  a 


SOLUTION  OF  LABOUR  PROBLEM     159 

year  to  expend  in  supporting  their  home  market. 
,£2,000,000,000!  A  sum,  this,  considerably  in 
excess  of  the  total  annual  production  of  wealth  in 
Great  Britain  from  all  sources  whatever,  even  if 
we  include  the  interest  on  our  foreign  investments. 
"  It  is,  then,  these  vast  daily  expenditures  by 
the  c  plain  people '  of  America,  and  only  these, 
which  make  good  times  for  trade,  and  are  the 
ever  fresh  foundations  for  huge  capitalist  accumula- 
tions. Given  full  employment  at  high  wages, 
every  class  within  the  nation  must  be  prosperous. 
It  is,  therefore,  the  first  duty  of  a  good  citizen  to 
pay  the  highest  wages  possible.  Enlightened  self- 
interest  binds  him  to  this  duty.  For  unless  he 
gives  freely  he  cannot  receive  bounteously.  Thus 
in  Reed's  philosophy  American  industries  consti- 
tute a  vast  c  Truck  System ' ;  every  employer  is 
vitally  concerned  that  public  opinion  shall  be  so 
focused  as  to  compel  his  neighbour  to  pay  the 
highest  conceivable  rate  of  wages,  because  every 
night  the  wage  recipient  will  be  inside  his  shop. 
From  the  view-point  of  the  American  capitalist 
a  '  tramp,'  a  man  out  of  work,  is  a  public  scandal. 
Such  an  one  creates  no  rivulet  of  demand;  he  is  a 
low  fellow,  away  with  him! — he  but  spoils  the 
symmetry  of  American  Protection.  But  in  the 
English  system  ten  per  cent,  of  our  people  chroni- 
cally out  of  work  present  the  capitalist  with  pre- 
cisely his  opportunity.  For  the  competition  of 


160  NATIONAL  SYSTEM  OF  ECONOMICS 

this  ten  per  cent,  can  always  be  relied  upon  to 
{  sweat '  the  entire  level  of  wages  throughout  the 
country.  Reed's  theory  of  <  indefinite  perfecti- 
bility '  was  this.  From  era  to  era  there  will  emerge 
for  us  great  inventions,  labour  saving,  expanding 
production,  but  only  if  in  a  rigidly  protected 
market.  These  inventions  operated  within  America 
will  secure  a  higher  and  higher  level  of  wages, 
during  shorter  and  shorter  hours.  But  share  these 
inventions  in  our  own  market  with  a  manufac- 
tured product  coming  from  China,  and  how  is  it 
possible  to  keep  the  home  rate  of  wages  rising 
and  thus  distribute  among  our  own  producers  a 
higher  proportion  of  wealth  produced? ':  It  may 
be  well  to  give  Reed's  own  words,  as  expressed 
in  his  great  speech  of  1894 — 

"  I  confess  to  you  that  this  question  of  wages 
is  to  me  the  vital  question.  To  insure  our  advance 
in  civilisation  and  in  wealth  we  must  not  only  have 
wages  as  high  as  to-day,  but  constantly  and  steadily 
increasing.  In  my  judgment,  upon  wages,  and 
the  consequent  distribution  of  consumable  wealth, 
there  is  based  all  our  hope  for  the  future  and  all 
the  progress  of  our  civilisation.  And  the  forward 
march  of  this  nation  is  dependent  on  the  progress 
of  every  one.  The  fact  that  in  this  country  all 
our  workers  have  been  getting  higher  wages  than 
elsewhere  is  the  reason  why  our  market  is  the  best 
in  the  world,  and  why  all  the  nations  of  the  earth 
are  trying  to  break  into  it." 


SOLUTION  OF  LABOUR  PROBLEM     161 

"  Here,  in  the  smallest  compass,"  continues  Mr. 
Frewen,  "  is  that  very  theory  of  the  distribution 
of  wealth  through  high  wages  for  which  the  modern 
world  is  waiting.  If  it  is  found  to  be  scientific, 
then  Socialism  is  unnecessary.  I  can,  indeed, 
imagine  a  world  wherein  humanity  just  a  little 
lower  than  the  angels  could  operate  a  philosophy 
of  Socialism.  So  could  Reed.  I  often  heard  him 
discuss  its  limitations.  But  that  world  is  for  ever 
away,  while  the  poor  we  have  always  with  us. 
The  absorption  of  production  through  high  wages 
—that  we  are  ready  for  at  this  moment,  and  that, 
rightly  understood,  is  the  underlying  principle  of 
American  Protection." 

The  most  notable  feature  of  the  discussions  and 
debates  which  have  hitherto  taken  place  on  Eco- 
nomic problems  is  this,  that  the  most  devoted 
adherents  of  the  doctrine  of  individual  liberty  also 
seem  to  be  the  greatest  advocates  of  the  policy  of 
Laissez  faire,  Laissez  passer;  but,  as  Reed  has 
pointed  out,  "  the  great  blunder  of  the  Herr 
Professor  of  Political  Economy  has  been  that 
he  treats  human  beings  as  if  every  man  were 
so  many  foot-pounds — such  and  such  a  fraction 
of  a  horse-power.  All  the  soul  of  man  he  leaves 
out." 

What  has  really  happened  is  that,  owing  to  the 
so-called  system  of  free  trade,  two  great  evils  have 
been  established  in  our  midst,  namely:  (i)  The 

M 


1 62  NATIONAL  SYSTEM  OF  ECONOMICS 

concentration  of  extreme  wealth  in  a  few  hands; 
and  (2)  extremes  of  poverty.  Advocates  of  this 
system  have  failed  to  conceive  that  the  maintenance 
of  the  principles  of  liberty,  freedom  and  justice, 
whilst  admirable  in  themselves,  are  yet  not  con- 
sistent with  Laissez  faire,  Laissez  passer. 

National  Economics  cannot  be  separated  from 
National  Sociology,  and  if  we  accept  this  as  a 
proposition,  which  it  will  be  difficult  not  to  do, 
the  State  must  surely  by  wise  laws  and  regulations 
regulate  all  unequal  conditions  which  exist. 

National  Economics  pertains  to  the  laws  which 
govern  the  production  and  distribution  of  wealth; 
but  whilst  the  great  experience  and  knowledge  we 
have  acquired  during  the  last  century  have  made 
us  all  proficient  in  the  art  of  production,  although 
we  are  not  quite  as  efficient  as  some  would  like 
to  see  us,  yet  we  have  not  acquired  the  same 
experience  and  knowledge  in  the  art  of  distributing 
the  wealth  so  produced;  and  we  believe  this  to  be 
the  main  contributing  cause  of  the  dissatisfaction 
which  prevails  between  capital,  management,  and 
organised  labour. 

It  cannot  be  too  strongly  emphasised,  in  view 
of  what  we  have  just  stated,  that  National  Eco- 
nomics and  Social  Science  are  inseparable,  since 
they  both  deal,  or  ought  to,  with  the  happiness  and 
welfare  of  the  greatest  number. 

Individual  freedom  is  the  most  precious  of  all 


SOLUTION  OF  LABOUR  PROBLEM     163 

our  national  characteristics;  but  it  follows  that 
individual  freedom  can  only  be  most  assured  and 
be  at  its  greatest  when  collective  liberty,  pros- 
perity, and  well-being,  prevail.  In  other  words, 
the  extent  to  which  we  may  enjoy  individual  free- 
dom very  much  depends  upon  the  extent  to  which 
our  country  enjoys  the  necessary  freedom  and 
liberty  in  the  production  of  utilities  and  commodi- 
ties. Individual  freedom  in  the  acquisition  of 
wealth  becomes  a  tyranny  when  the  conditions  in 
which  it  is  obtained  are  unequal,  and  when  a  like 
freedom  is  refused  to  others;  or  when  it  is  un- 
just in  distributing  wealth  and  welfare  equitably 
to  art,  capital,  enterprise,  management,  intellect 
and  labour,  in  due  proportion  to  the  exertion 
which  each  of  these  forces  contribute  to  their 
creation. 

In  these  circumstances  would  it  be  reasonable 
to  believe,  or  even  assume,  that  the  working  con- 
ditions which  prevail  in  production  in  normal 
times  under  the  system  advocated  by  the  "  leave 
alone  school,"  i.  e.  Laissez  faire,  Laissez  passer,  can 
ensure  a  fair  and  equal  distribution  of  the  national 
wealth  produced  ?  Empirical  methods  can  certainly 
never  assure  to  us  such  fair  and  equitable  working 
conditions  as  we  now  advocate.  In  the  circum- 
stances, is  the  system  worth  supporting? 

Is  it  possible  that  liberty,  freedom  and  justice 
can  prevail  with  all  its  virtues,  when  men  are 


1 64  NATIONAL  SYSTEM  OF  ECONOMICS 

obliged  to  work  for  mere  subsistence  wages  under 
the  system  of  Laissez  faire,  Laissez  passer,  and  be 
subject  to  the  competition  of  lower  paid  labour  in 
less  advanced  countries,  or  to  the  competition 
from  countries  with  higher  paid  labour,  but  which, 
in  view  of  the  better  working  conditions  which 
prevail  with  them,  are  able  to  produce  commodities 
upon  a  large-scale  basis,  and  consequently  upon 
the  lowest  possible  basis  of  cost  per  unit  of  goods 
produced  ? 

Again,  can  we  consider  that  agricultural  labour 
has  freedom  when  there  is  land  which  can  be  put 
under  cultivation  at  home,  but  which,  owing  to  the 
working  conditions  which  prevail,  the  agricultural 
workers  are  unable  to  work  upon  with  profit  to 
themselves  ? 

We  must  surely  all  agree  that  freedom  implies 
the  right  to  live,  and  that,  similarly,  the  right  to 
live  implies  the  right  to  work.  Can  we  be  cer- 
tain, therefore,  of  the  essential  working  conditions 
now  suggested  under  the  so-called  system  of  free 
trade  which  now  prevails  with  us,  i.  e.  Laissez 
faire,  Laissez  passer? 

Those  individuals  who  would  assert  in  the 
affirmative  would  certainly,  in  our  view,  be  sup- 
porting a  false  and  futile  doctrine;  not  only  that, 
but  we  believe  they  would  retard  by  such  assertion 
a  solution  of  the  difficulties  which  now  exist 
between  capital,  management  and  organised 


SOLUTION  OF  LABOUR  PROBLEM     165 

labour;  and,  ipso  facto,  prevent  our  national  and 
Imperial  industries  from  being  developed  to  their 
utmost  possible  extent. 

Sufficient  has  now  been  said,  we  think,  to  show 
the  difference  between  the  theory  of  American 
National  Economy,  as  advocated  by  Reed,  and  the 
theories  advanced  by  the  Cobdenite  school  of 
thought,  which  in  the  main  desires  unrestricted 
competition  so  that  it  may  have  a  large  reservoir 
of  labour  from  which  it  may  buy  its  men  and 
women  cheap.  Under  the  Cobdenite  theories 
mere  subsistence  wages  only  are  possible  in  normal 
trading  conditions,  because  the  reservoir  of  labour 
which  the  system  ensures  will  secure  that.1 

As  for  the  Marxian  theories  of  employment  and 
surplus  values,  we  have  already  said  sufficient,  we 
believe,  to  afford  a  comparison  being  made  by  the 
reader. 

Therefore,  of  the  three  systems  we  have  now 
discussed,  we  think  it  will  be  generally  agreed  that 
Reed's  theory  of  American  Protection — or,  in 
other  words,  his  theory  of  National  Economy — is 
by  far  the  soundest  from  the  standpoint  of  labour, 
management  and  capital;  although  we  do  not 

1  We  have  to  frankly  recognise  that  in  this  country  business 
men,  organised  labour,  and  certain  politicians  followed  certain 
doctrines,  or  political  faiths,  because  it  suited  their  pockets  to 
do  so.  Prior  to  the  war  there  was  no  national  spirit  to  speak 
of. 


1 66  NATIONAL  SYSTEM  OF  ECONOMICS 

personally  agree  with  the  principle  of  high  tariffs, 
as  it  must  necessarily  cripple  the  export  trade. 

Prince  Bismarck,  in  a  speech  delivered  before 
the  Reichstag  on  May  2,  1879,  supported  Reed's 
theory,  and  what  he  said  of  Germany  is  also  true 
of  Great  Britain,  as  follows — 

"  One  thing  is  clear,  that  through  the  widely 
open  doors  of  its  import  trade,  the  German  market 
has  become  the  mere  storage-place  for  the  over- 
production of  other  countries.  We  must,  there- 
fore, shut  our  gates  and  take  care  that  the  German 
market,  which  is  now  being  monopolised  by 
foreign  wares,  shall  be  reserved  for  native  industry. 
Countries  which  are  enclosed  have  become  great, 
and  those  which  have  remained  open  have  fallen 
behind.  Were  the  perils  of  Protectionism  really 
so  great  as  sometimes  painted,  France  would  long 
ago  have  been  ruined,  instead  of  which  she  was 
more  prosperous  after  paying  the  five  milliards 
than  Germany  is  to-day.  And  Protectionist 
Russia,  too — look  at  her  marvellous  prosperity! 
.  .  .  The  question  before  us  is  not  a  political  but 
a  financial  one,  and  we  should  put  all  personal 
sensibility  aside.  Because  it  is  my  deliberate  judg- 
ment that  the  prosperity  of  America  is  mainly  due 
to  its  system  of  protective  laws,  I  urge  that  Ger- 
many has  now  reached  that  point  where  it  is  neces- 
sary to  imitate  the  tariff  system  of  the  United 
States.  ...  I  see  that  the  Protective  countries 
are  prospering;  the  Free  Trade  countries  are 
decaying." 


SOLUTION  OF  LABOUR  PROBLEM     167 

And  if  we  look  at  our  economic  history  in  per- 
spective, who  can  deny  the  truth  of  the  proposition 
advanced  by  Bismarck? 

In  so  far  as  Great  Britain  is  concerned,  our 
theory  is  that  National  Economy  based  upon  free- 
dom of  trade,  i.e.  low  tariffs,  is  by  far  the  best 
system  that  could  be  devised  to  meet  her  peculiar 
necessities,  as  she  must  export  in  order  to  be  able 
to  import;  both  are  the  arterial  veins  of  the 
country,  and  contain  its  life's  blood. 

The  only  possible  solution  of  the  problem  which 
now  confronts  us,  therefore,  is  to  distribute  wealth 
through  the  medium  of  wages;  but,  as  a  corollary 
to  this,  it  is  essential,  as  we  have  more  than  once 
indicated,  that,  if  we  are  to  make  substantial 
progress,  the  leaders  of  organised  labour  in  this 
country  should  ensure  or  guarantee  the  abolition 
of  the  ca'  canny  policy,  /.  e.  abandon  altogether 
the  theory  underlying  the  principle  of  restriction 
of  output.  It  is  a  false  doctrine  and  stultifies 
progress. 

But  we  have  one  more  word  to  say  to  the 
employers  in  this  connection  by  way  of  conclusion, 
and  it  is  this :  that  we  can  see  no  difference 
between  the  dishonest  worker  who  shirks  his  work, 
or  refuses  to  render  value  in  proportion  to  the 
extent  of  the  wages  he  may  receive,  and  a  certain 
type  of  capitalist,  or  company  promoter,  who  is 
usually  on  the  look-out  "  for  something  for 
nothing." 


1 68  NATIONAL  SYSTEM  OF  ECONOMICS 

There  is  a  certain  type  of  company  promoter- 
there  are  always  black  sheep  to  be  found  in  each 
sphere  of  influence — who  endeavours  to  obtain 
from  the  public  £  i  in  cash  for  a  £  i  Share,  worth, 
perhaps,  125.  in  value.  In  other  words,  he  in- 
dulges in  what  is  known  as  "  watering  of  capital," 
and  we  believe  it  to  be  as  essential  that  this  evil 
should  be  considered — and,  if  possible,  destroyed 
— just  as  much  as  the  restriction  of  output  by  the 
workers.  It  would  indeed  be  unfair  to  attack  one 
side  of  the  problem  and  leave  the  other  side 
untouched. 

We  have  much  to  learn  from  Germany  in  this 
respect,  where  watering  of  capital  is  discoun- 
tenanced and  discouraged.  The  leading  banks  in 
Germany  will  make  no  issues  which  savour  of  such 
a  practice,  the  result  being  that  the  public  get  full 
value  in  return  for  their  cash  and  hard-earned 
savings. 

The  watering  of  capital  increases  cost  of  pro- 
duction just  as  much  as  the  restriction  of  output, 
and  if  we  are  to  secure  that  co-operation  between 
management,  labour  and  capital  in  the  future 
which  all  desire,  it  is  very  desirable  that  both  evils 
should  be  dealt  with  simultaneously.  It  is  only 
by  holding  the  balance  fairly  that  we  can  hope  to 
achieve  success. 


SOLUTION  OF  LABOUR  PROBLEM     169 

ON    THE    DISTRIBUTION    OF    WEALTH    THROUGH 
HIGH    WAGES 

The  distribution  of  wealth  through  high  wages 
is  a  subject  very  little  understood  by  the  general 
public,  even  among  those  whom  it  most  directly 
concerns;  and  it  is  desirable  that  we  should  give 
it  consideration,  for  it  is  in  reality  the  bete  noire 
of  capital,  management  and  labour.  Whenever 
the  subject  is  discussed  it  is  generally  assumed  to 
mean  by  the  wealthy  classes  and  the  manufacturers 
that  such  capital  as  they  possess  can  be  the  only 
wealth  from  which  any  demand  that  may  be  form- 
ulated can  be  satisfied;  and  that  any  person  who 
may  support  the  idea  of  the  distribution  of  wealth 
through  high  wages  is  a  Socialist,  or  one  having 
socialistic  inclinations;  and  for  this  reason  his 
friendship  is  not  considered  desirable. 

It  must  be  said,  however,  that  this  somewhat 
natural  feeling  has  had  some  foundation  in  fact, 
for  the  legislation  to  which  we  were  most  accus- 
tomed to  in  pre-war  days  actually  did  have  this 
result — as,  for  instance,  the  death  duties;  but  as 
to  whether  they  were  designed  in  the  best  interests 
of  the  country  we  will  consider  later. 

On  the  other  hand,  when  the  subject  is  discussed 
by  organised  labour  it  is  quite  clear  from  the 
reports  of  the  debates  and  the  speeches  that  are 
made  upon  the  subject  that  they  mean  nothing 


i  yo  NATIONAL  SYSTEM  OF  ECONOMICS 

else  but  that  which  is  indicated  above;  from  which 
it  may  be  gathered  that  the  wealthy  classes  and 
the  manufacturers  are  entirely  justified  in  assum- 
ing the  attitude  they  do.  To  which,  in  a  measure, 
we  agree. 

But  the  fact  nevertheless  remains  that  both  sides 
display  an  ignorance  that  is  lamentable;  for  the 
simple  reason  that  existing  capital  cannot  be  dis- 
tributed without  being  confiscated,  which  is  not 
our  intention.  And  if  it  be  taxed  with  such  an 
ulterior  motive  behind  it,  it  only  means  that  the 
capital  of  the  country  is  being  absorbed  in  the 
expenditure  of  the  country,  which,  as  a  matter  of 
practical  politics  and  economics,  is  unsound  in 
theory  as  well  as  in  practice. 

If  the  laws  and  regulations  of  the  nation  are  such 
as  hinder  the  creation  of  wealth  in  a  greater  ratio 
than  it  consumes,  the  national  productive  power 
will  assuredly  decline;  inasmuch  as  the  degree  of 
its  productive  power  is  merely  a  reflex  of  its 
financial  power.  It  therefore  follows  that  if  the 
nation's  financial  resources  are  confiscated  to  satisfy 
or  meet  its  national  expenditure,  its  productive 
power  must  be  seriously  affected.  And  in  this 
matter,  when  we  speak  of  the  nation's  financial 
resources  we  speak  of  the  capital,  either  liquid  or 
fixed,  which  individuals  and  associations  of  indi- 
viduals may  respectively  possess. 

Therefore  the  nation's  expenditure  should  be 


SOLUTION  OF  LABOUR  PROBLEM     171 

provided  for  only  out  of  the  nation's  revenue, 
i.e.  the  new  wealth  which  it  may  annually  create, 
and  from  no  other  source.  And  the  measure  of 
its  success  will  very  largely  depend  upon  the  skill 
with  which  it  applies  its  collective  experience, 
knowledge  and  intelligence  in  the  pursuit  of  it. 

When  we  discuss  the  distribution  of  wealth 
through  high  wages  we  do  not  discuss  the  dis- 
tribution of  liquid  capital — the  subjects  are  entirely 
separate  in  character  as  well  as  in  fact;  and  as  for 
the  distribution  of  fixed  capital,  it  would  be  absurd 
to  discuss  it  at  all,  for  the  simple  reason  that  we 
cannot  cut  up  land,  building  and  machinery,  into 
small  parcels  for  exchange  purposes.  Apart  from 
this,  they  are  the  permanent  instruments  we  use 
for  the  creation  of  further  wealth;  and  if  this 
is  only  borne  in  mind  it  will  greatly  facilitate 
progress  in  the  object  we  are  pursuing. 

There  are,  therefore,  two  aspects  of  the  question 
to  be  considered  :  namely,  present  wealth,  in  which 
is  embodied  liquid  and  fixed  capital;  and  future 
wealth,  from  which  further  liquid  and  fixed  capital 
is  created,  out  of  which  all  that  is  wasted  or  de- 
stroyed is  replenished,  and  further  additions  made 
to  existing  resources.  And  in  our  present  dis- 
cussion it  is  with  the  latter  that  we  are  mainly 
concerned. 

The  distribution  of  wealth  through  high  wages, 
such  as  we  propose,  must  be  arranged  and  provided 


172  NATIONAL  SYSTEM  OF  ECONOMICS 

for  whilst  the  new  wealth  is  in  process  of  creation. 
But  before  any  satisfactory  arrangement  can  be 
concluded  there  are  two  factors  which  require  to 
receive  consideration,  particularly  by  organised 
labour,  and  it  is  a  sine  qua  non,  namely— 

(1)  The  value  of  labour  is  not  determined  by 
the  wages  each  individual  workman  receives,  but 
by  the  efficiency  of  the  services  rendered  in  return 
for  the  wages  received.  In  other  words,  there  are 
two  sides  to  the  question  to  be  considered :  (i.)  the 
labour  power;  and  (ii.)  the  productive  power  of 
labour. 

(2)  As  the  distribution  of  wealth  is  best  pro- 
vided for  through  the  medium  of  high  wages,  and 
as  a  corollary  human  welfare,  the  extent  of  the 
national  wealth  to  be  produced  depends  upon  the 
political  support  which  labour  will  give  to  achieve 
and  maintain  it;  for  the  simple  reason  that  high 
wages  can  only  be  paid  out  of  the  wealth  which  the 
nation  can  itself  produce,  and  rests  upon  no  other 
factor.     Therefore,  to  obtain  the  necessary  free- 
dom  by  which   alone   the  desired   result   can   be 
achieved,  tariff  duties  must  necessarily  be  imposed 
upon  all  articles  of  utility  that  are  imported,  and 
upon  which  foreign  labour  is  expended. 

The  tariff  duties  which  it  may  be  necessary  to 
impose  to  secure  the  desired  result,  provided  they 
are  fixed  on  a  basis  pro  rata  to  the  amount  which 
the  home  manufacturer  contributes  to  the  cost  of 


SOLUTION  OF  LABOUR  PROBLEM     173 

the  national  services  and  beneficent  social  measures, 
should  be  regarded,  as  in  fact  they  are  designed 
to  be  in  the  national  system,  as  the  barometer 
which  registers  the  advance  and  extent  of  the 
nation's  social  and  human  well-being.  Any  ad- 
vance which  organised  labour,  or  the  general 
public,  may  seek  to  achieve  in  this  direction  can 
only  be  effected  and  maintained  with  the  assistance 
of  the  import  duties  which  the  tariff  schedules  may 
provide.  It  will  be  obvious,  therefore,  to  those 
who  may  care  to  give  careful  consideration  to  the 
problem,  that  any  beneficial  arrangement  that  may 
be  concluded  providing  for  the  distribution  of 
wealth  through  high  wages  ought  not  to  be  pre- 
judiced by  competition  from  lower  paid  labour  in 
less  advanced  countries. 

The  import  duties,  as  provided  for  in  the  national 
system  of  economics  based  on  freedom  of  trade 
having  a  maximum  of  20  per  cent,  ad  valorem^ 
will,  in  our  view,  achieve  the  result;  it  is  this 
system  alone  which  will  assure  of  the  productive 
power  of  the  nation  being  increased,  and  of  all 
dead  values  being  made  remunerative.  As  Reed 
has  so  very  ably  expressed  it — 

"  For  a  nation  to  get  out  of  itself  or  out  of  the 
earth  all  the  wealth  there  is  in  both,  it  is  not  neces- 
sary for  that  nation  to  buy  cheap  or  sell  dear." 

In  other  words,  if  native  industry  desires  to 


174  NATIONAL  SYSTEM  OF  ECONOMICS 

secure  an  increased  distribution  of  the  national 
wealth  produced  annually,  it  must  first  of  all  win, 
or  produce  by  combined  effort,  the  wealth  necessary 
for  the  purpose  from  the  material  resources  it  pos- 
sesses; and  any  attempt  to  short-cut  this  process 
by  confiscating  or  taxing  existing  wealth  or  capital 
must  necessarily  defeat  its  own  purpose. 

There  have  been  various  meanings,  or  defini- 
tions, given  to  the  term  wealth.  But  such  as  have 
been  submitted  for  consideration  have  usually  been 
dealt  with  from  the  individual  standpoint  instead 
of  from  the  national.  An  individual,  or  an  associa- 
tion of  individuals,  may  possess  fixed  or  liquid 
capital,  or  their  product — i.  e.  utilities  and  com- 
modities; or,  in  the  alternative,  he,  or  they,  may 
only  have  experience,  knowledge,  and  intelligence 
which,  if  they  be  possessed  of  an  exchangeable 
value,  may  be  termed  wealth.  But  the  degree  of 
the  exchangeable  value  is  determined  by  the  extent 
of  the  national  productive  power  which  may  prevail 
in  the  country  in  which  the  individual  may  live. 
If  the  national  productive  power  in  all  its  phases 
be  great,  the  general  demand  for  manufactured 
utilities  and  commodities  of  all  description,  and 
personal  service,  will  be  on  a  corresponding  basis. 
On  the  other  hand,  if  the  individual,  or  association 
of  individuals,  be  left  to  trade  to  the  best  of  their 
own  personal  effort  only,  without  the  assistance  of 
the  national  productive  power,  the  exchangeable 


SOLUTION  OF  LABOUR  PROBLEM     175 

value  of  their  wealth,  or  personal  services,  will 
correspond  to  the  price  which  sheer  necessity  will 
alone  dictate. 

The  extent,  therefore,  to  which  individual  wel- 
fare may  prosper  and  progress  is  entirely  dependent 
upon  the  laws  and  regulations  which  the  State  in 
its  wisdom  decrees  in  favour  of  the  development 
of  national  industry,  agriculture,  and  all  the  natural 
resources  which  it  may  control;  but,  subject  to  the 
national  political  requirements  as  stated  aforesaid, 
on  no  account  should  the  State  restrict,  participate 
in,  or  interfere  with,  the  natural  freedom  of  trade. 


CHAPTER    VII 

ON   AGRICULTURE   AND   ITS   INFLUENCE 
ON   LABOUR 

IT  would  be  difficult  to  conceive  any  permanent 
or  satisfactory  solution  of  the  labour  problem 
which  did  not  take  into  consideration  the  constant 
rise  in  the  prices  of  food  and  food  products  in  rela- 
tion to  the  value  of  wages  paid;  and  no  survey  of 
the  position  could  be  considered  adequate  which 
overlooked  this  aspect  of  the  question,  inasmuch 
as  the  sustenance  of  labour  has  an  important  bear- 
ing upon  the  whole  problem.  The  means  of  sub- 
sistence is  one  factor,  but  the  sustenance  is  another, 
and  the  two  problems  must  be  examined  separately. 
We  have  already  examined  the  first,  and  we  shall 
now  proceed  to  examine  the  second. 

As  we  have  mentioned  on  more  than  one  occa- 
sion, costs  of  production  of  articles  of  utility  are 
constantly  on  the  decrease,  due,  in  a  large  measure, 
to  invention  and  improved  machinery,  as  well  as 
to  system  and  better  organisation  in  distribution; 
and  that  were  it  not  for  this  fact  Industry  could 
not  possibly  meet  the  demands  frequently  made 
upon  it  for  higher  wages  and  taxation. 

176 


AGRICULTURE    AND   LABOUR      177 

If  the  problem  of  the  distribution  of  wealth 
through  high  wages  and  taxation  could  be  deter- 
mined in  the  office  or  workshop  alone,  it  would 
not  be  so  difficult  of  solution,  inasmuch  as  the 
purchasing  value  of  the  sovereign,  in  so  far  as 
it  concerns  articles  of  utility,  such  as  sewing- 
machines,  kitchen  utensils,  and  furniture,  is  on 
the  increase,  and  therefore  on  a  satisfactory  basis; 1 
but  when  we  come  to  consider  the  purchasing 
value  of  the  sovereign  in  so  far  as  it  concerns  food 
and  food  products,  we  find  it  is  on  the  decrease, 
and  we  see  no  reason  why  this  should  be  so.  It 
is  only  necessary  for  the  Government,  in  our  view, 
to  give  more  earnest  consideration  to  the  develop- 
ment of  our  agricultural  resources,  and  to  see  that 
more  scientific  methods  are  applied  in  respect 
thereto,  to  effect  an  improvement. 

It  would,  perhaps,  not  be  fair  to  blame  the 
farmers  entirely  for  the  backward  condition  of 
agriculture  in  this  country  and  in  Ireland,  since 
the  Government  are  primarily  at  fault.  Agricul- 
tural Ireland  in  1850  had  a  population  of  approxi- 
mately 8,000,000  souls,  but  it  has  now  only  a 
population  of  approximately  4,000,000,  and  this 
decrease  can  only  be  attributable  to  the  doctrine 
of  Laissez  faire,  Laissez  passer.  And  if  it  is  borne 
in  mind  that  the  agricultural  population  of  Great 
Britain  has  been,  and  is  still,  very  much  in  the 

1  We  are  here  speaking  of  pre-war  conditions. 

N 


178  NATIONAL  SYSTEM  OF  ECONOMICS 

same  position,  it  will  be  recognised  that  drastic 
remedies  are  necessary,  and  the  experience  gained 
from  the  country  being  in  a  state  of  war  has 
confirmed  this  point  of  view.  There  is  everywhere 
a  great  shortage  of  agricultural  products. 

If  a  satisfactory  solution  of  the  labour  problem 
is  to  be  achieved  it  is  very  essential  that  the  State 
shall  ensure  that  every  inch  of  the  soil  of  Great 
Britain  and  Ireland  which  can  be  made  available 
for  the  purpose  is  put  under  cultivation  and  de- 
veloped in  the  most  scientific  manner  possible  in 
the  interest  of  the  community  as  a  whole,  in  order 
that  the  purchasing  value  of  the  sovereign  may  be 
increased  in  value,  in  so  far  as  it  concerns  food  and 
food  products. 

The  particular  aspect  of  this  question  which 
has  impressed  us  most  is  the  extraordinary  pro- 
clivity which  mankind  has,  as  a  whole,  to  concen- 
trate upon  invention  and  improved  methods  for 
the  production  of  articles  of  utility,  and  in 
ignoring  the  all-important  problem,  the  production 
of  food  and  food  products;  one  is  surely  a  corollary 
of  the  other.  The  agricultural  population  has 
been  too  much  inclined  to  migrate  to  the  great 
cities  and  towns  to  work  in  merchants'  offices  or 
in  factories,  presumably  on  account  of  the  better 
wages  that  are  paid  and  of  the  greater  enjoyment 
to  be  found  in  the  great  cities  and  towns.  But 
the  fact  nevertheless  remains  that  the  State  does 


AGRICULTURE    AND   LABOUR      179 

not  seem  to  have  given  sufficient  study  to  this  all- 
important  question,  to  the  meaning  of  poverty,  or 
to  the  causes  which  create  poverty. 

The  distribution  of  wealth  through  high  wages 
ceases  to  be  effective  if  the  value  of  the  circulating 
media  decreases  in  purchasing  value,  and  it  seems 
to  us  that  so  long  as  this  state  of  affairs  exists  we 
shall  always  continue  to  maintain  what  is  now 
commonly  known  as  the  "vicious  circle" — i.e. 
the  passing  on  of  the  various  problems  that  arise 
for  solution  from  one  sphere  of  activity  to  the 
other  without  any  particular  one  in  reality  solving 
them  as  they  arise.  The  various  expedients  which 
are  invariably  resorted  to,  such  as  the  recent  fifteen 
per  cent,  rise  in  wages  conceded  to  the  Welsh  coal- 
miners  by  the  Board  of  Trade  (which  ought  to  be 
regarded  as  a  criminal  offence),  whilst  temporarily 
easing  the  situation,  in  reality  only  aggravates  the 
problem,  which  still  has  to  be  solved.  The 
inevitable  crisis  will  occur  sooner  or  later. 

We  do  not  believe  that  any  real  improvement 
in  the  distribution  of  wealth  and  welfare  can  be 
effected  by  paying  high  wages  to  one  section  of 
labour  only  out  of  all  proportion  to  those  which 
other  sections  may  receive,  for  it  only  means  that 
the  community  in  general  must  pay  the  cost;  or  at 
any  rate  that  part  of  it  which  does  not  share  in  the 
advantage.  On  the  contrary,  we  are  rather  in- 
clined to  the  belief  that  if  any  permanent  improve- 


i8o  NATIONAL  SYSTEM  OF  ECONOMICS 

ment  is  to  be  effected  it  can  only  be  achieved  by 
increasing  the  purchasing  value  of  the  circulating 
media  in  preference  to  increasing  the  quantity;  and 
this  can  be  automatically  brought  about  by  increas- 
ing the  productive  power  of  labour  in  agriculture 
to  the  same  intense  degree  as  prevails  in  the  manu- 
facturing industries. 

If  sufficient  scientific  study  were  devoted  to  the 
subject  of  the  production  of  food  and  food  pro- 
ducts we  believe  that  the  real  solution  would  be 
found,  and  also  that  there  need  be  no  such  thing 
as  poverty.  Although  it  is  said  that  we  must 
always  have  the  poor  with  us,  it  nevertheless  will 
always  remain  very  largely  a  question  of  degree; 
to  be  poor  and  to  be  in  poverty  are  two  different 
states  of  existence. 

One  of  the  means  we  must  employ,  then,  to 
achieve  our  purpose  is  to  call  to  our  aid  the  most 
intelligent  brains  that  are  available  to  assist  in 
stimulating  the  productivity  of  the  land  now  under 
cultivation  by  a  skilful  use  of  artificial  fertilisers 
and  in  turning  to  account  all  land  that  is  at  present 
unproductive  by  the  same  means.  We  must 
abandon  the  doctrine  of  Laissez  faire,  Laissez 
passer,  in  so  far  as  food  and  food  products  are 
concerned,  inasmuch  as  it  means  that  we  have  to 
rely  upon  the  world  in  general  having  a  sufficient 
surplus  to  send  to  us  to  satiate  our  wants.  It  should 
only  be  necessary  for  us  to  fall  back  upon  foreign 


AGRICULTURE    AND   LABOUR      181 

markets  in  the  event  of  our  own  immediate 
resources  failing  us. 

The  population  of  the  world  is  growing  rapidly, 
and  the  time  will  arrive  when  all  that  is  grown 
outside  these  islands  will  be  required  by  the  native 
populations  in  the  countries  on  which,  in  the  past, 
we  have  relied;  and  the  most  notable  instance  of 
this  in  recent  years  is  the  case  of  the  United  States, 
which  is  now  able  to  consume  pretty  well  all  that 
she  is  able  to  produce. 

If  national  defence  be  of  more  importance  than 
opulence,  the  proper  sustenance  of  the  population 
of  this  country,  whilst  it  is  in  a  state  of  war,  can 
only  be  regarded  as  an  essential  measure  of  defence; 
and  all  means  which  pertain,  or  lead,  to  this  object 
should  be  employed  and  made  effective. 

We  have  said  that  there  is  an  intense  concentra- 
tion upon  the  improvement  of  methods  of  pro- 
duction in  the  manufacture  of  articles  of  utility, 
and  to  all  inventions  relating  thereto;  but  the  same 
intensity  of  concentration  is  not  devoted  to  the 
production  of  the  means  whereby  life  is  sustained 
— i.  e.  in  the  winning  of  dividends  from  nature. 

As  we  have  already  indicated,  method  and 
organisation  play  a  vitally  important  part  in  pro- 
duction. That  they  should  play  a  great  part  in 
the  products  of  any  group  of  production  needs  no 
special  argument.  The  farmer  who  tills  his  soil 
by  means  of  his  own  hands  and  the  crudest  tools 


1 82  NATIONAL  SYSTEM  OF  ECONOMICS 

reaps  but  a  small  product.1  But  the  farmer  who 
employs  upon  his  lands,  in  addition  to  his  own 
labour,  a  sufficient  quantity  of  all  the  other  agents 
— a  sufficient  amount  of  capital  and  business 
management — reaps  a  much  greater  product  for 
himself  and  the  other  agents.  Labour  and  capital 
employed  upon  the  cultivation  of  agricultural 
products,  just  as  much  as  labour  and  capital  used 
in  any  other  group  or  subgroup  of  production, 
create  products  largely  in  proportion  to  the  method 
of  their  employment.  And  this  method  is  deter- 
mined by  the  farmer  as  a  business  manager,  rather 
than  by  the  farmer  as  a  labourer  or  a  tenant. 
Business  management  and  ownership  are,  there- 
fore, vitally  important  factors  in  agriculture.  It 
is  these  factors  which  determine  the  amount  of 
capital  used  upon  the  soil  in  the  shape  of  machinery 
and  fertilisers,  which  determine  the  kind  of  crop 
planted,  and  which  determine  the  number  and 
efficiency  of  the  labourers  employed.  On  every 
hand  we  see  farmers  who,  though  they  toil  with 
all  of  their  physical  energies,  reap  exceedingly 
small  harvests.  They  do  not  use  a  sufficient 
amount  of  skill,  intelligence  and  judgment,  and 
these  qualities  are  just  as  necessary  in  the  group 
of  production  called  agriculture  as  they  are  in  any 
other  group.  In  some  cases  it  may  be  due  to  the 

1  Principles  of  Wealth  *nd  Welfare,  by  Professor  Charles  Lee 
Rapcr. 


AGRICULTURE   AND    LABOUR    183 

conditions  upon  which  the  farmer  occupies  the 
land.  If  it  be  on  the  tenancy  principle  he  will, 
of  course,  have  little  inclination  for  energetic 
development. 

Method  and  organisation  are  just  as  vitally 
important  in  agriculture  as  they  are  in  industry. 
The  farmer  who  employs  nothing  but  his  muscular 
strength,  energy,  and  crude  implements  brings 
forth  from  the  soil  only  a  small  product :  this  is 
termed  labour  power.  But  the  farmer  who  makes 
use  of  capital  in  the  shape  of  efficient  agricultural 
machinery,  who  applies  systematic  research  and 
makes  use  of  management,  intelligence  and  judg- 
ment, as  well  as  muscular  strength  and  energy, 
will  produce  valuable  quantities  of  produce :  this 
is  termed  the  productive  power  of  labour. 

It  follows,  then,  that  it  is  only  by  establishing 
the  principle  of  ownership  that  we  can  hope  to 
develop  our  agricultural  resources  to  their  full 
maximum,  and  by  so  doing  bring  about  the 
necessary  reduction  in  costs  of  production. 

There  is  a  very  interesting  article  by  Mr.  More- 
ton  Frewen  in  the  Nineteenth  Century  for  Novem- 
ber 1916  on  the  Economics  of  James  J.  Hill,  and 
the  following  quotation  is  pertinent  to  the  question 
we  are  now  discussing — 

"  The  world's  new  economics,  Hill  once  said, 
will  have  relation  not  so  much  to  the  high  cost 


1 84  NATIONAL  SYSTEM  OF  ECONOMICS 

of  living  as  to  *  the  cost  of  high  living.'  No  com- 
munity is  going  to  be  turned  away  without  fighting 
and  dying  from  a  standard  of  living  which  has 
crystallised  into  habit.  The  mighty  beast  Demos 
we  must  feed  not  worse  but  always  better,  and 
how  is  it  to  be  done  ?  We  must  search  the  prairie 
for  the  answer  to  that  question.  This  brought 
him  to  consider  the  whole  theory  of  value.  What 
is  the  unit  of  value?  An  acre  of  prairie  land. 
But  what  sort  of  prairie  land?  Good  land.  But 
what  do  you  mean  by  c  good '  ?  What  is  your 
valuator?  The  bushel  basket,  he  would  say. 
Eight-bushel  land  has  no  economic  value;  twelve- 
bushel  land  has  value,  but  twenty-four-bushel  land 
— c  now,  sir,  you're  talking !  '  The  communities 
with  the  twenty-four-bushel  lands  in  vast  area — 
the  United  States,  Canada,  Russia,  far  Australia — 
these  are  they  who,  like  the  saints,  c  shall  inherit 
the  earth.'  But  what  more  is  needed  to  declare 
and  to  compare  value?  Propinquity  to  market! 
Thus  he  worked  it  out  that  his  twenty-four-bushel 
land,  to  be  worth  ^32  an  acre,  must  be  within  a 
freight  distance  of  36  cents  a  bushel  from  its  con- 
suming market — say  Liverpool.  To  put  a  ton 
of  wheat  from  twenty-four-bushel  land  into  Liver- 
pool at  a  freight  rate  of  505.,  it  was  that  which 
established  a  value  of  ^32;  which  value,  again, 
would  be  increased  by  every  mechanical  improve- 
ment in  engines,  or  in  fuel  combustion,  in  better 
railway  grades,  or  cheap  water  links.  If  he  could 
be  induced  to  believe — and  he  could  not  be — that 
wheat  in  Liverpool  would  ever  again  settle  down 
for  a  long  period  at  a  lower  price  than  55.  a  bushel 


AGRICULTURE    AND   LABOUR      185 

(405.  per  quarter),  Hill  was  still  quite  clear  that 
4  twenty-four-bushel  land '  would,  for  meat-raising 
and  the  general  purposes  of  mixed  farming,  main- 
tain its  value.  Land  is  stationary,  population  and 
its  pressure  on  space  is  increasing  prodigiously; 
because  of  the  cost  of  high  living,  high  food  prices 
have  come  to  stay.  Such  was  Hill's  extremely 
simple  theory  of  values.  It  will  be  interesting  to 
see  whether  his  confident  forecast  is  established  by 
the  history  of  the  next  half-century.  The  new 
Canadian  prairie,  probably  more  fertile  than 
Dakota,  and  certainly  the  recipient  of  more  solar 
heat,  will  best  test  the  Hill  theory  of  land  values." 

It  is  quite  clear  from  the  above  that  Hill's  main 
theme  is  productivity  of  the  land,  but  we  are  not 
quite  in  agreement  with  his  proposition  that 
"  because  of  the  cost  of  high  living  high  food 
prices  have  come  to  stay."  On  the  contrary,  it 
will  have  been  gathered  from  the  general  observa- 
tions we  have  made  from  time  to  time  that  because 
of  the  cost  of  high  living  the  development  of  all 
phases  of  agriculture  must  be  treated  more 
seriously  as  an  industrial  proposition  in  order  that 
costs  of  production  may  be  reduced;  and,  as  a 
corollary,  in  order  that  the  purchasing  value  of  the 
sovereign,  or  its  paper  equivalent,  may  be  increased. 
This  is  the  most  important  of  all  the  problems 
relating  to  national  welfare  and  defence,  and  should 
at  all  times  receive  the  most  earnest  consideration 
of  the  Government. 

If  the  same  concentration  and  time  were  devoted 


1 86  NATIONAL  SYSTEM  OF  ECONOMICS 

to  cultivation  and  to  the  production  of  food  and 
food  products  it  would  prove  to  be — or  at  any  rate 
it  ought  to  be — as  profitable  as  the  concentration 
and  time  devoted  to  the  production  of  articles  of 
utility;  capital  can  be  made  remunerative  in  either 
sphere  of  activity;  and  in  order  to  demonstrate  this 
proposition,  we  submit  the  following  comparative 
table  for  study  and  consideration,  in  so  far  as  it 
concerns  the  development  of  the  beet-sugar 
industry  in  Germany. 

The  beet-sugar  industry  is  of  particular  interest 
in  connection  with  the  present  crisis,  because  it  is 
an  example  of  an  industry  which  received  a  most 
important  impetus  through  the  exclusion  of  British 
goods  (Colonial  cane-sugar)  from  Continental  ports 
during  the  Napoleonic  wars.1 

The  following  figures  clearly  demonstrate  and 
reflect  the  keen  concentration  devoted  to  the  In- 
dustry by  those  who  control  it  in  Germany,  show- 
ing that  the  capital  employed  in  the  industry,  and 
presumably  the  wages  of  the  labour  employed,  has 
been  on  an  increasingly  remunerative  basis — 


In  1840  100  Ib.  of  beet  yielded 

•        5'9 

Ib.  sugar. 

1850          „          „          „ 

•       7'3 

„ 

1870          „         „          „ 

.       8-4 

»y 

1890          „          „          „ 

I2'5 

„ 

19  10          »          »          » 

.     15-8 

» 

1  See  First  Principles  of   Production  (Peddle) ;    the  statistics 
are  by  Professor  Percy  Frankland,  F.R.S. 


AGRICULTURE    AND   LABOUR      187 

Whilst  the  results  indicated  in  the  above  figures 
are  most  striking  and  confirm  the  proposition  we 
have  always  advanced,  that  costs  of  production  are 
always  on  the  decrease  in  so  far  as  manufactured 
utilities  are  concerned,  we  get  a  still  more  striking 
result  from  the  economy  which  has  been  effected 
in  the  consumption  of  the  fuel  used  in  the  manu- 
facture of  the  sugar — 

1867  coal  used  on  loolb.  beet  .     .      35  Ib. 
1877          „          „          „  .     .      24  „ 

1890          „          „          „  .     .      10  „ 

I9°°  »  »  »  '          '  7      99 

The  present  position  of  Germany  in  the  sugar 
industry  of  the  world  can  be  appreciated  from  the 
following  figures — 

TOTAL  SUGAR  CROP,   1912-13 

Tons. 

Cane-sugar          .         .          .          .          9,211,755 

Beet-sugar,  European  (J  German)          8,310,000 

„  United  States     .          .  624,064. 


Total          .          .        18,145,819 

Previous  to  the  war  the  United  Kingdom 
annually  imported  1,700,000  tons  of  sugar 
(^23,000,000). 

Annually  produces  Beet-sugar  on 

£  Acres. 

Germany       .      .     .     ,     ..  -        36,000,000        1,300,000 
France     .....     .          13,000,000  570,000 

All  Continental  countries .        116,000,000       6,000,000 


1 88  NATIONAL  SYSTEM  OF  ECONOMICS 

The  above  figures  clearly  exemplify  how  agri- 
cultural production  as  a  whole  could  be  improved 
by  similar  systematic  research,  and  by  the  applica- 
tion of  improved  methods  such  as  have  been 
bestowed  on  it  by  Germany. 

If  we  turn  our  attention  to  the  German  agri- 
cultural industry  as  a  whole,  we  again  find  the 
following  very  interesting  results — 

In  1871  the  mean  yield  of  beet  per  hectare 

of  land  was  .....  246  quintals 

In  1910  the  mean  yield  of  beet  per  hectare 

of  land  was  .....  300  „ 

As  indicating  the  great  and  progressive  attention 
devoted  to  agriculture,  Germany's  artificial  manure 
bills  for  1888  and  1912  are  highly  instructive — 

1888  1912 

Tons.  Tons. 

Chile  saltpetre      .     .     .  225,000  .  650,000 

Sulphate  of  ammonia      .  50,000  .  500,000 

Superphosphate    .      .      .  250,000  .  1,800,000 

Basic  slag 250,000  .  2,200,000 

Crude  potash  salts      .     .  160,000  .  3,000,000 

Lime .  800,000 

Other  manures      .     .      .  500,000  .  500,000 


Total  value     .     .     .     ^30,000,000 

The  following  comparison  is  also  of  interest — 

USE  OF  ARTIFICIAL  PHOSPHATIC  MANURES  (PER  ANNUM) 

England     ...        48  Ib.  per  acre  cultivated 
France  .     ,     .     .      105          „          „          „ 
Germany   ...      105          „          „          „ 


AGRICULTURE    AND   LABOUR      189 

In  a  preface  which  he  wrote  to  that  most  admir- 
able paper  on  the  "  Recent  Development  of  Ger- 
man Agriculture,"  by  Mr.  T.  H.  Middleton,  C.B., 
Lord  Selborne  declares  that  "  if  agriculture  had 
made  no  more  progress  in  Germany  than  it  has  in 
the  United  Kingdom  during  the  period  1895- 
1915,  the  German  Empire  would  have  been  at  the 
end  of  its  food  resources  long  before  the  second 
year  of  the  war,  and  that  as  a  matter  of  fact  the 
war  was  being  fought  by  it  just  as  much  on  an 
agricultural  as  on  a  military  organisation  of  the 
nation."  l 

This  fact  is  clearly  demonstrated  in  the  paper 
itself,  and  the  following  very  interesting  statistics 
which  are  taken  from  it  rather  tend  to  confirm 
those  supplied  by  Professor  Percy  Frankland, 
F.R.S.— 


PRODUCTION   ON   THE    AVERAGE    IOO-ACRE    FARM 
OF    BRITAIN    AND    GERMANY 

"  From  an  examination  of  figures  relating  to 
production,  most  of  which  are  given  below,  the 
following  statements  would  appear  to  be  justified — 

1  To  those  who  may  desire  to  study  the  question  further 
I  would  recommend  the  purchase  of  this  most  valuable  paper, 
published  by  Wyman  &  Sons  [Cd.  8305],  price  \d.  And  also 
a  study  of  the  publications  of  Mr.  Christopher  Tumor,  one  of 
our  great  authorities  on  land  settlement. 


1 90  NATIONAL  SYSTEM  OF  ECONOMICS 

"  On  each  hundred  acres  of  cultivated  land — 

(1)  The  British  farmer  feeds  from  45   to   50 

persons,  the  German  farmer  feeds  from 
70  to  75  persons. 

(2)  The  British  farmer  grows  15  tons  of  corn, 

the  German  farmer  grows  33  tons. 

(3)  The    British    farmer    grows     n     tons    of 

potatoes,  the  German  farmer  grows   55 
tons. 

(4)  The  British  farmer  produces  4  tons  of  meat, 

the  German  farmer  produces  4^  tons. 

(5)  The  British  farmer  produces   17^  tons  of 

milk,   the   German   farmer  produces   28 
tons. 

(6)  The  British  farmer  produces  a  negligible 

quantity   of   sugar,   the   German   farmer 
produces  2f  tons." 

The  following  statistics  should  also  prove  inter- 
esting, as  showing  the  response  which  the  soil  has 
made  in  Germany  to  the  application  of  artificial 
manures  referred  to  on  page  188. 

YIELD    PER   ACRE    PER   ANNUM 


ENGLAND  AND  WALES. 

GERMANY. 

1885-89. 

1909-13. 

1883-87. 

1909-13. 

Wheat  (busheli)  .     . 
Barley        „     .     .     .    - 
Oats           „       '   ,     .    , 
Potatoei  (tons)     .     . 

29-5 
32-4 
38-8 
6'9 

31-2 
32-7 
39-0 
6-2 

19-8 
22-7 
25-7 
3-4 

31-6 
36-7 
44-6 
5-4 

Meadow  Hay  (cwt.)  . 

1886-89. 
26-1 

23-1 

22-5 

33-7 

AGRICULTURE    AND   LABOUR      191 

With  regard  to  the  observation  made  by  Mr. 
Middleton  as  to  the  inferiority  of  the  soils  and 
climate  of  Germany,  it  need  only  be  stated  here 
that  the  increased  yields  shown  above  are  due  to 
systematic  research  and  to  a  plentiful  use  of  arti- 
ficial manures;  and  the  adoption  of  a  tariff  has, 
perhaps,  also  been  helpful.  The  production  of 
food  in  Germany  is  quite  clearly  undertaken  as  an 
industrial  proposition;  and  we  are  here  tempted 
to  inquire  what  would  have  been  the  influence  on 
the  world's  prices  of  wheat,  other  food  and  food 
products,  had  Germany  not  developed  her  agri- 
culture to  the  extent  she  has.  It  is  an  object  lesson 
in  the  first  principles  which  form  the  basis  of 
nationality. 

Mr.  Middleton  proceeds  as  follows — 

STATISTICS  OF  THE  AVERAGE  FARM  OF  THIS 
COUNTRY  AND  GERMANY 

"  If  the  British  farmer  of  the  nineteenth  century 
had  more  technical  skill,  a  better  soil  and  a  more 
favourable  climate,  why  is  it  that  the  German  now 
contrives  to  feed  fifty  per  cent,  more  persons  on 
the  land  he  tills?  Before  an  attempt  is  made  to 
deal  with  the  reasons  it  will  be  desirable  to  examine 
in  greater  detail  the  general  conditions  under  which 
the  farmers  of  the  two  countries  carry  on  their 
business.  The  statistical  notes  which  follow  re- 
lating to  the  tenure  of  land,  the  arrangement  of 
crops,  the  extent  of  the  live  stock  industry,  labour, 
wages,  and  the  value  of  estates,  are  intended  to 

-V 


192  NATIONAL  SYSTEM  OF  ECONOMICS 

bring  out  the  main  features  of  the  farming  of  each 
country.  With  the  exception  of  the  figures  relat- 
ing to  labour,  the  statistics  for  this  country  are  for 
England  and  Wales." 


TENURE    AND    SIZE    OF    HOLDINGS 

About  ninety-three  per  cent,  of  the  agriculturists 
of  Germany  own  the  land  they  cultivate;  in 
England  and  Wales  only  eleven  per  cent,  of  the 
occupiers  are  owners. 

The  following  statement  compares  the  size  of 
holdings  in  England  and  Wales  and  Germany — 

SIZES  OF  HOLDINGS  IN  ENGLAND  AND  WALES  AND  IN  GERMANY 


ENGLAND  AND  WALES  (1914) 

GERMANY  (1907) 

SIZE. 

ACREAGE. 

PER 

CENT. 

SIZE. 

ACREAGE. 

PER 

CENT. 

1-5  acres  .     . 
5-20    „     .     . 
20-50    ,,     .    . 

Total  under 
50  acres 

50-100  acres  . 
100-150   „      . 
150-300  „      . 
Above  300  acres 

Total  over 
50  acres  .     . 

TOTAL    . 

282980 
1,366,990 
2,636,094 

I'l 

5-0 
9-7 

Under  1J  acres  . 
H-5           „     . 
5-12J          ,     . 
12J-50        „     - 

898,882 
3,429,395 
8,262,195 
26,053,910 

1*1 

4-3 
10-4 
32-7 

4,286,064 

15-8 

Total  under 
50  acres 

36,644,382 

48-5 

4,340,952 
3,940,343 
7.848,424 
6,698,221 

16-0 
145 
29-0 
24-7 

50-125  acres  . 
125-250      „    . 
250-500      „     . 
500-1,250,,     . 
1,250-2,500  ,,    . 
2,500  acres  and 
over  .... 

17,053,348 
6,252,010 
3,748,062 
7,509,848 
5,134,705 

1,244,933 

21-4 
7-9 
4-7 

9-4 
6-5 

1-6 

22,827,940 
27,114,004 

84-2 

Total  over 
50  acres    . 

40,942,803 

51-5 

100 

Total    . 

79,587,185 

100 

AGRICULTURE   AND   LABOUR      193 

It  has  recently  been  stated  that  England  has  too 
many  farms  too  big  for  men  prepared  to  use  their 
hands  and  too  small  for  men  prepared  to  use  their 
heads.  If  we  include  all  holdings  of  less  than 
125  acres  of  cultivated  land  as  being  suited  for  the 
farmer  who  uses  his  hands,  and  all  holdings  of  over 
250  acres  as  being  adapted  for  the  man  who  tries 
to  use  his  head,  then  it  would  appear  that  70  per 
cent,  of  the  soil  of  Germany  is  at  the  disposal  of  the 
former  and  22  per  cent,  available  for  the  latter; 
thus  leaving  only  8  per  cent,  in  holdings  which  are 
too  large  for  working  cultivators  and  too  small  for 
well-educated  farmers.  In  England  and  Wales, 
on  the  other  hand,  only  32  per  cent,  of  the  land  is 
divided  into  holdings  of  less  than  100  acres,  while 
no  less  than  43  per  cent,  is  found  in  holdings  of 
from  TOO  to  300  acres.  Thus  it  would  appear  that 
the  proportion  of  the  soil  of  this  country  in  hold- 
ings of  a  doubtfully  desirable  size  must  be  about 
four  times  as  great  as  in  Germany." 

The  figures  disclosed  in  the  table  on  the  next 
page  are  most  interesting;  they  show  the  number 
of  persons  employed  both  permanently  and  tem- 
porarily per  100  acres  of  cultivated  land  in  Great 
Britain  and  Germany  respectively. 

The  inference  to  be  drawn  from  the  statistics 
is  this,  that  intensity  of  concentration  in  the  pro- 
duction of  food  and  food  products  through  the 
labour  of  man  is  like  the  fruitfulness  of  the  earth 
itself;  the  more  the  earth  absorbs  of  it  the  more 
does  it  reproduce  in  return. 


194  NATIONAL  SYSTEM  OF  ECONOMICS 

The   truth    of    this   proposition    requires   very 
careful  consideration,  particularly  in  view  of  the 

NUMBER  OF  PERSONS  EMPLOYED  IN  AGRICULTURE 


Number  per  100  acres  of  cultivated  land. 

Total  employed 
in  Agriculture. 

Permanently 
employed. 

Temporarily 
employed. 

u 

"rt 

4'6 
8'3 

9-3 
8-9 

Female 

1 

5'8 
18-3 

12'4 
17-6 

£ 

13 

a 

3'6 
6-2 

6-6 
7-3 

^v 

£ 

10 

6-0 

26 
6-3 

1 

j> 
"rt 

| 

_«J 

1 

02 
4-0 

0-5 
2-4 

H 

1-2 
61 

32 
4'0 

Average    number  employed  on 
all  holdings  — 
Great  Britain  

1-2 

10-0 

3-1 
8'7 

4-6 
122 

92 

13-6 

1-0 
2-1 

2-7 
16 

Small  holding!  — 
Great  Britain  (5-50  acres)    . 
Germany  (12^-50  acres)  .     . 

Large  holdings  — 
Great  Britain  (over  300  acres) 
Germany  (250  acres  and  over) 

2-7 
4'2 

04 
3-0 

3-1 

7-2 

2-4 
3-1 

0-3 
T7 

2'7 

4-8 

0-3 
11 

o-i 

1-3 

0-4 
2-4 

great  need  for  reducing  imports  after  the  war  is 
concluded,  and  in  creating  a  large  home  market. 
It  will  be  necessary  for  us  to  produce  all  the  wealth 
we  possibly  can  within  these  islands  in  order  to  be 
in  a  position  to  liquidate  the  costs  of  the  war, 
apart  from  the  other  considerations  which  we  have 
attempted  to  enunciate.  Though  some  people 
may  not  generally  admit  that  the  productiveness 
of  the  soil  of  Great  Britain  might,  with  good 
cultivation,  be  made  greater,  yet  all  additional 
stimulants  will  have  to  be  applied  in  order  that  the 


AGRICULTURE    AND   LABOUR      195 

greatest  wealth  which  the  earth  can  yield  may  be 
produced,  and,  as  a  corollary,  in  order  that  the 
greatest  amount  of  employment  may  be  provided 
for  the  population  of  these  islands. 

If,  as  some  people  assert,  and  not  without  reason, 
a  period  of  acute  depression  will  exist  with  us  after 
the  war  is  over,  it  is  obvious  that  the  more  agri- 
cultural labour  we  employ  on  the  land  the  more 
will  it  tend  to  minimise  it. 

If  for  no  other  reason  than  the  foregoing  a 
greater  agricultural  development  is  essential;  and 
if  part  of  the  wealth  produced  is  distributed 
through  the  medium  of  high  wages,  with  a 
guaranteed  minimum  of  twenty-five  shillings  to 
every  able-bodied  man,  the  home  demand  for 
manufactured  goods  should  receive  the  desired 
stimulus. 

The  general  theory  underlying  this  principle 
being  that  the  larger  the  number  of  workers  we 
can  employ  in  profitable  industry,  whether  it  be 
agriculture  or  manufacture,  the  greater  will  be  the 
individual,  and  hence  the  collective  reconsumption. 
In  other  words,  we  shall  be  able  to  create  a  larger 
internal  demand  for  our  manufactures. 

We  have  in  the  past  been  far  too  prone  to 
measure  the  value  of  our  import  trade  and  export 
trade  by  its  magnitude — we  like  to  see  large 
figures — forgetting  all  the  while  that  the  prosperity 
of  the  country  depends  as  much,  if  not  more  so, 


196  NATIONAL  SYSTEM  OF  ECONOMICS 

upon  the  condition  and  efficiency  of  its  internal 
trade  than  upon  its  external;  and  that  it  is  possible 
for  the  internal  trade  of  a  country  to  render  the 
greatest  part  of  its  external  trade  unnecessary  and 
be  more  wealth-productive.  As  an  illustration 
take  the  case  of  Ireland.  If  our  national  system  of 
economics  were  such  that  Ireland  could  again 
maintain  a  population  of  8,000,000  souls  as  she 
did  in  1850,  instead  of  the  4,000,000  she  main- 
tains to-day,  would  it  not  be  more  in  favour  of 
our  national  interests  to  trade  with  this  increase 
of  population  if  it  could  be  restored,  as  it  can, 
than  to  trade  with  4,000,000  people  in  South 
America?  If  we  increased  the  importation  of 
agricultural  commodities  from  Ireland  it  would 
not  only  be  to  our  mutual  advantage  from  the 
point  of  view  of  exchange  value,  but  we  should 
be  rendering  an  act  of  justice  long  since  over- 
due. 

4 'According  to  the  natural  course  of  things, 
therefore,  the  greater  part  of  the  capital  of  every 
growing  society  is,  first,  directed  to  agriculture, 
afterwards  to  manufactures,  and  last  of  all  to 
foreign  commerce.  This  order  of  things  is  so 
very  natural  that  in  every  society  that  had  any 
territory  it  has  always,  I  believe,  been  in  some 
degree  observed."  * 

The  great  teacher's  wisdom  is  always  penetra- 
1  Adam  Smith,  The  Wealth  of  Nations,  Book  III,  p.  304. 


AGRICULTURE    AND   LABOUR      197 

ting.  The  moral  we  seek  to  establish  is  this  :  that 
we  should  develop  our  own  material  resources  to 
their  utmost  possible  extent,  after  which  we  can 
commence  to  consider  the  question  of  exchanging 
our  surplus  productions  in  foreign  markets  for 
those  we  may  find  ourselves  most  in  need  of. 

Apart  from  the  great  question  herein  involved, 
there  is  another  aspect  of  the  question  which  ought 
not  to  be  overlooked,  and  that  is  the  vitality, 
general  health,  and  physical  condition  of  the 
population;  in  other  words,  the  necessity  of 
creating  and  maintaining  a  robust  people.  Prince 
von  Biilow,  in  his  book,  Imperial  Germany  (1914), 
explains  the  reasons  which  led  him  to  increase  the 
protective  tariffs  in  favour  of  German  agricultural 
produce  as  follows — 

"  I  was  persuaded  that  vigorous  agriculture  is 
necessary  for  us  from  the  economic,  but,  above  all, 
from  the  national  and  social  points  of  view.  .  .  . 
Without  great  and  flourishing  agriculture  by  its 
side,  industry  would  soon  use  up  the  best  forces 
of  the  nation.  .  .  .  Agriculture  is  the  mother  of 
the  nation's  strength  which  industry  employs." 

As  Mr.  Middleton  in  his  valuable  paper  points 
out,  these  quotations  show  the  consideration  which 
weighed  with  von  Biilow — 

"  He  appears  to  have  been  specially  impressed 
with  the  eugenic  argument  for  agriculture.  He 


198  NATIONAL  SYSTEM  OF  ECONOMICS 

alludes  to  the  great  fall  in  the  birth-rate  in  towns, 
and  gives  some  striking  figures  as  to  the  effect  of 
town  life  on  physical  vigour.  He  refers  to  a  Com- 
mission appointed  by  himself  in  1906  to  inquire 
into  the  percentages  of  men  fit  for  military  service 
who  came,  respectively,  from  town  and  country. 
This  inquiry  showed  that  for  each  100  men  which 
it  was  estimated  would  be  forthcoming  for  military 
service,  there  were  supplied — 

By  large  cities  (100,000  and  over)   .  65  men  fit  for  service. 
By  towns  of  20,000-100,000           .     83         „  „ 

By  country  districts  and  villages 

less  than  2000 114        „  „ 

"  Of  the  parents  of  men  fit  for  service,  75  per 
cent,  came  from  the  country,  and  only  i'y  from 
large  towns.  (It  should  be  noted  that  the  housing 
conditions  in  many  German  towns  are  bad.) 

"  Von  Biilow's  reference  to  the  value  of  a  strong 
agriculture  in  time  of  war  is  also  of  much  interest. 
The  following  sentences  were  probably  written  in 
1912 — 

"  *  As  in  time  of  war,  industry  is  dependent  on 
the  buying  power  of  agriculture,  the  productive 
power  of  agriculture  is  a  vital  question  for  the 
whole  nation.  There  are  parties  and  groups  repre- 
senting certain  economic  interests  which  demand 
that  the  Government  shall  place  a  very  small  duty 
on  agricultural  products  from  abroad,  or  even  let 
them  in  duty  free,  so  that  the  price  of  comestibles, 
under  the  pressure  of  foreign  competition,  may  be 
kept  low,  and  thus  the  industrial  workman's 


AGRICULTURE    AND   LABOUR      199 

expenses  of  living  may  be  reduced.  They  want 
to  base  all  economic  policy  on  an  imaginary  per- 
manent peace.  Our  agriculture,  which  has  to  com- 
pete, so  far  as  wages  are  concerned,  with  the  high 
wages  paid  by  industrial  concerns,  which  has  to 
employ  the  most  modern  and  expensive  machinery 
in  order  to  pursue  intensive  culture  on  soil  that 
has  been  tilled  for  centuries,  is  absolutely  unable 
to  produce  at  the  same  price  as  the  large,  young 
agricultural  countries,  which  work  virgin  soil  and 
pay  small  wages. 

" c  Our  agriculture  needs  a  protective  tariff. 
Imported  agricultural  products  must  have  a  suf- 
ficiently heavy  duty  imposed  on  them  to  prevent 
the  foreign  supply  from  falling  below  a  price  at 
which  our  home  agriculture  can  make  a  fair  profit. 
The  reduction  of  agrarian  duties  at  the  time  of 
Caprivi's  commercial  policy  brought  about  a  crisis 
in  our  agriculture  which  it  was  only  able  to  weather 
by  dint  of  working  with  stubborn  energy,  and 
hoping  for  a  complete  change  of  tariff  arrange- 
ments within  a  short  time.  If  we  sacrificed  the 
protective  tariff  on  agricultural  products  in  order 
to  lower  the  cost  of  living  by  means  of  cheap 
imports,  the  danger  would  arise  that  agricultural 
work  would  grow  more  and  more  unprofitable,  and 
would  Have  to  be  given  up  to  a  greater  and  greater 
extent.  We  should  go  the  way  England  has 
gone.' " 

The  point  which  now  arises  for  consideration 
is  whether  a  general  protective  tariff  for  British 


200  NATIONAL  SYSTEM  OF  ECONOMICS 

agriculture  on  lines  somewhat  similar  to  that  sug- 
gested by  Prince  von  Billow  is  possible  in  a 
country  like  ours,  where  the  area  of  land  which 
can  be  put  under  cultivation  is  a  long  way  short 
of  what  is  required. 

It  will  always  be  necessary  for  Great  Britain  to 
import  very  large  quantities  of  wheat  and  other 
cereals  to  satisfy  the  home  demand,  so  that  the 
circumstances  which  surround  our  particular  diffi- 
culty are  peculiar  to  ourselves  alone. 

Several  courses  are  open  to  consideration. 
Mr.  Middleton  deals  with  some  of  them  in  his 
most  admirable  paper,  but  the  best  course  to 
pursue,  in  so  far  as  it  concerns  Great  Britain,  would 
seem  to  be  to  put  a  tariff  only  upon  the  key 
industry  of  agriculture — namely,  the  growing  of 
wheat,  leaving  all  other  farming  produce  severely 
alone.  Give  the  farmer  a  good  and  profitable 
market  for  the  wheat  he  may  produce,  and  the 
general  reduction  of  costs  of  farming  and  other 
benefits  which  would  accrue  to  him  as  a  result 
would  be,  in  our  view,  a  sufficient  protection  to 
his  industry.  The  farmer  has  a  natural  protection 
in  the  freight  and  railway  rates  which  are  payable 
upon  all  farm  and  other  agricultural  produce  im- 
ported into  this  country,  and  it  would  be  a  mistake 
to  augment  this  natural  protection  by  placing 
import  duties  upon  the  importation  of  such  pro- 
duce. We  do  not,  of  course,  include  margarine 


AGRICULTURE    AND   LABOUR      201 

as  a  farm  produce;  it  is  a  manufactured  article,  and 
as  such  should  be  assisted  by  a  tariff  duty. 

Let  us  do  everything  that  is  possible  to  protect 
the  farmer  in  his  key  industry,  and  also  find  him 
a  profitable  market  for  his  produce  at  home,  and 
this,  combined  with  a  keener  concentration  upon 
the  development  of  agriculture  as  an  industrial 
proposition,  with  the  addition  of  scientific  and 
systematic  research,  and  efficient  transportation 
services,  will  go  a  long  way  towards  increasing  the 
productiveness  of  British  agriculture. 

A  general  raising  of  the  tariff  upon  all  agri- 
cultural produce  must  necessarily  defeat  any  solu- 
tion of  the  labour  problem  which  may  be  achieved 
in  so  far  as  Great  Britain  is  concerned,  because  of 
the  great  shortage  of  land  available  for  cultivation. 
It  is,  therefore,  undesirable  that  an  all-round 
general  tariff  should  be  imposed. 

The  substantial  tariff  suggested  for  the  key 
industry  of  agriculture — namely,  wheat — would 
have  one  further  advantage,  in  that  we  could  con- 

D     * 

cede  a  preference  on  the  duty  payable  to  the 
Dominions  and  Colonies,  and  so  pave  the  way 
towards  that  great  Imperial  Federation  which 
public  opinion  now  considers  to  be  desirable. 

Apart  from  this  aspect  of  the  question,  it  would 
also  assist  in  the  development  of  the  attractive 
scheme  proposed  by  Mr.  Moreton  Frewen  for  the 
establishment  of  a  large  empire  farm,  or  farms, 


202  NATIONAL  SYSTEM  OF  ECONOMICS 

in  the  Dominions,  the  proceeds  of  which,  we 
believe,  are  intended  for  the  benefit  of  the  people 
of  this  country,  and  the  capital  values  of  which, 
it  is  suggested,  should  go  to  the  Treasury  for  the 
purpose  of  reducing  the  National  Debt. 

There  is  one  further  suggestion  which  might 
prove  to  be  useful  as  a  supplement  to  the  import 
duty  to  be  imposed  on  wheat,  or  as  an  alternative, 
and  that  is  that  several  elevators  should  be  erected 
throughout  the  United  Kingdom,  at  convenient 
centres,  to  which  the  farmers  should  be  requested 
to  send  their  unsold  wheat,  unless  otherwise 
directed  by  the  management.  The  elevators 
should  be  placed  under  the  control  of  the  Flour 
Millers'  Association  of  Great  Britain  and  Ireland, 
who  should  undertake  to  be  responsible  for  the 
management  of  them  in  all  respects. 

There  should  then  be  an  agreement  between  the 
State  and  the  flour  millers  that,  in  return  for  a 
reasonable  import  duty  to  be  imposed  on  imported 
flour,  the  millers  would  undertake  to  purchase 
all  the  wheat  produced  in  the  United  Kingdom  at 
current  market  prices,  but  that  the  price  to  be  paid 
per  quarter  should  at  no  time  fall  below  a  certain 
fixed  minimum,  to  be  agreed  upon  between  the 
farmers,  or  their  representatives,  and  the  flour 
millers;  the  final  agreement,  of  course,  to  receive 
the  approval  of  the  State.  This  is  a  very  simple 
arrangement,  and,  with  goodwill  prevailing  on 


AGRICULTURE    AND   LABOUR      203 

either  side,  should  not  be  difficult  of  accomplish- 
ment. 

In  connection  with  this  scheme  there  should 
also  be  created  an  efficient  motor  transport  service, 
and  special  rates  and  facilities  should  also  be  pro- 
vided by  the  railway  companies  in  connection 
therewith;  but  we  shall  deal  with  this  aspect  of  the 
question  at  a  later  stage  when  we  come  to  deal  with 
the  general  theory  of  transportation. 

The  concluding  part  of  the  problem  to  be  solved 
is  to  set  about  devising  means  for  increasing  the 
number  of  small  holders — \.  e.  ownerships — of 
land,  and  we  cannot  do  better  than  quote  Mr. 
Christopher  Turner,  one  of  our  great  authorities 
on  the  subject — 

"The  Departmental  Committee  appointed  to 
consider  the  settlement  and  employment  on  the 
land  of  discharged  sailors  and  soldiers  have  issued 
a  report  on  each  subject;  and  I  will  not  pretend  to 
be  anything  but  highly  gratified  at  seeing  that  the 
Report  on  Settlement  embodies  all  but  one  of  the 
principles  which  I  stated  before  you  last  year  to  be 
essential  features  of  successful  land  settlement. 

"This  one  essential  feature,  which  the  Com- 
mittee, on  their  part,  assume  not  to  be  essential,  is 
that  of  ownership.  Indeed,  they  frankly  declare 
against  ownership,  and  substitute  for  it  the  prin- 
ciple of  tenancy.  They  give  us  many  reasons  for 
their  choice,  but  omit  the  most  powerful  reason  of 
all  against  such  choice :  that  of  universal  experi- 


204  NATIONAL  SYSTEM  OF  ECONOMICS 

ence.  Wherever  we  study  the  science  and  practice 
of  successful  settlement,  ownership  is  invariably 
one  of  the  fundamental  principles  deliberately 
adopted.  Denmark  provides  quite  a  striking 
illustration  of  this  point.  Two  generations  ago  the 
percentage  of  the  owners  and  tenants  of  Danish  soil 
was  as  12  to  88 — exactly  as  it  is  with  us  this  day. 
But  the  Danish  people  set  themselves  the  task  of 
redressing  what  they  perceived  to  be  a  wrong  prin- 
ciple; and  to-day,  as  the  result  of  a  wisely  conceived 
land  policy,  the  proportion  is  exactly  reversed : 
88  owners  to  12  tenants.  In  several  of  our 
Dominions  we  can  observe  a  similar  process; 
their  respective  Governments  at  first  adopted  the 
principle  of  tenancy  (leasehold),  but  very  soon 
substituted  for  it  the  principle  of  ownership. 

"  In  stating  this  fact,  I  am  by  no  means  intend- 
ing to  say  that  successful  colonisation  is  not 
possible  under  a  system  of  tenancy  if  all  the  other 
fundamental  principles  of  settlement  are  observed  : 
I  merely  wish  to  record  that,  so  far  as  I  am  aware, 
there  is  no  evidence  available  which  either  proves 
or  disproves  this  theory;  but  that  the  evidence  in 
favour  of  the  principle  of  ownership  is  over- 
whelming. 

"  Indeed,  the  very  failure  of  small  ownership 
in  this  country  is  a  proof  of  the  general  principle. 
For  what  happened  ?  A  hundred  years  ago  Arthur 
Young  told  us  that  ownership  had  the  magic  power 
of  turning  sand  into  gold.  What  he  ought  to  have 
said  is  that  ownership  is  one  of  the  essential  fea- 
tures in  a  process  which  turns  (  sand  into  gold ' 


AGRICULTURE    AND   LABOUR      205 

(i.e. renders  unproductive  land  highly  productive). 
But  in  that  case  we  should  have  got  a  simple 
scientific  statement  instead  of  a  dazzling  phrase, 
in  which  even  to-day  about  one-half  of  the  nation 
can  see  nothing  but  good  and  the  other  nothing 
but  bad.  Indeed,  the  idea  of  tenure  became  with 
us  an  obsession.  All  reform  was  looked  at  from 
the  point  of  view  of  tenure;  and  we  have  ever 
since  acted  as  if  a  part  were  more  important  than 
the  whole. 

"  About  the  time  that  Young  coined  his  phrase, 
Davy  laid  the  foundation  of  the  great  Law  of  the 
Minimum  in  Plant  Production.  In  its  completed 
modern  form  it  states  that  there  can  be  no  growth 
until  all  the  factors  of  growth  are  present;  and  that 
the  quality  and  quantity  of  growth  is  determined 
by  that  factor  of  which  the  smallest  amount  is 
available.  For  though  there  may  be  enough  sun- 
shine, and  water,  and  mineral  salts  to  make  an 
eight-quarter  crop  of  wheat,  if  there  is  only  enough 
nitrogen  in  the  soil  for  making  a  four-quarter  crop, 
a  four-quarter  crop  is  all  we  shall  get. 

"  One  of  the  chief  objections  to  the  further 
extension  of  the  system  of  small  holdings  raised 
by  these  critics  is  that  the  life  of  the  small  holder 
is  very  hard.  At  the  best,  we  are  told,  it  is  an 
existence  of  ceaseless  drudgery  performed  for  a 
mere  pittance.  The  pathetic  description  would 
impress  one  more  if  it  did  not  invariably  come 
from  persons  whose  motives  cannot  be  regarded 
as  disinterested,  seeing  that  the  critics  are  farmers, 
or  the  spokesmen  of  the  farmers  or  landowners. 


206  NATIONAL  SYSTEM  OF  ECONOMICS 

Of  course,  there  is  no  doubt  that  the  small  holders' 
struggle  for  success  might  be  made  much  easier. 
As  I  pointed  out  last  year,  the  result  of  our 
amateurish  treatment  of  a  scientific  process  is  that 
our  small  farmers  have  to  bear  burdens  which  a 
rational  treatment  in  other  countries  has  long  ago 
lifted  from  the  shoulders  of  their  small  farmers; 
and  it  is  this  very  feeling  of  injustice  to  our  own 
people  and  the  recognition  of  the  duty  to  lighten 
their  burdens  which  has  inspired  the  Committee 
Report  and  given  us  the  first  instalment,  as  I  hope 
it  to  be,  of  a  national  land  policy — perhaps  even 
of  an  Imperial  policy.  But,  when  all  is  said  and 
done,  there  remains  the  fact  that  our  291,000  small 
holders  seem  to  be  uncommonly  fond  of  the  life. 
Moreover,  as  the  demand  for  small  holdings  was 
far  from  satisfied  at  the  beginning  of  the  war,  it 
seems  as  if  thousands  of  other  men  were  exceed- 
ingly anxious  to  share  a  life,  the  hardships  of  which 
they  were  implored  by  leaders  and  farming  papers 
not  to  undergo. 

"  The  other  chief  argument  is  that  c  the  small 
holdings  movement  is  already  overdone.5  Now, 
it  is  quite  true  that  there  are  almost  twice  as  many 
small  holders  as  farmers.  The  Board  of  Agricul- 
ture Statistics  tell  us  that  in  England  and  Wales 
there  are  291,000  small  holders  and  143,000 
farmers;  in  the  proportion  of  two  to  one.  But 
these  statistics  tell  us  something  else :  that  the 
14,000  large  farmers — that  is,  men  holding  over 
300  acres — hold  2,500,000  acres  more  than  all  the 
291,000  small  holders  put  together.  We  are, 
therefore,  neither  entitled  to  say  that  the  Small 
Holdings  Movement  is  c  overdone,'  nor  to  deny 


AGRICULTURE    AND   LABOUR      207 

that  there  appears  to  be  room  for  a  very  consider- 
able increase  in  the  number  of  small  holdings. 

"  But  before  we  can  reasonably  take  steps  to 
extend  the  existing  area  under  small  holdings,  we 
must  first  of  all  give  up  pretending  that  our 
amateurish  method  of  c  providing  small  holdings,' 
as  it  is  called,  can  take  the  place  of  a  rational 
system  of  land  settlement  any  more  than  gambling 
can  take  the  place  of  sound  business.  Indeed,  one 
of  our  first  tasks  should  be  to  create  more  favour- 
able conditions  for  the  existing  291,000  small 
holders,  and  make  them  more  economic  units  than 
most  of  them  are  under  the  existing  unfavourable 
conditions." 

Mr.  Tumor  advances  the  case  in  favour  of  small 
ownership  of  land  in  a  most  lucid  and  eloquent 
manner. 

But  we  would  go  further  than  Mr.  Turnor,  and 
say  that  an  agricultural  labourer  should  either  be 
paid  a  reasonable  minimum  wage  for  his  labour 
or  be  given  reasonable  facilities  for  acquiring  such 
land  as  he  may  require.  But  the  principle  of 
inducing  a  man  to  gamble  with  the  value  of  his 
labour,  such  as  is  involved  in  his  becoming  a 
tenant  farmer,  is  atrocious  and  should  not  be  per- 
mitted. Apart  from  the  injustice  involved  in  the 
system,  it  cannot  be  expected  that  the  tenant  will 
develop  his  land  and  general  industry  to  its  utmost 
extent  beyond  what  is  necessary  to  maintain  his 
existence  and  that  of  his  family.  On  the  other 
hand,  ownership  will  ensure  that  he  will  do  so  not 


208  NATIONAL  SYSTEM  'OF  ECONOMICS 

only  in  his  own  interests,  but  in  the  national 
interests. 

If  the  principle  of  tenancy  were  prohibited  by 
law  it  would  get  rid,  once  and  for  all,  of  the 
theory  of  rent. 

It  may  be  argued,  of  course,  that  there  is  no 
difference  between  leasing  land  and  leasing  a 
factory  or  a  house.  But  there  is  a  very  great 
difference,  inasmuch  as  in  the  first  case  the  divi- 
dends which  have  to  be  won  from  nature  depend 
as  much  on  climatic  conditions  as  on  physical  and 
mental  ability;  whereas,  in  the  second  case,  physical 
and  mental  ability  only  count  in  the  final  result, 
and  no  further  speculative  element  intervenes. 
Then,  again,  the  landlord  of  a  factory  or  a  house 
can  only  demand  a  rent  consistent  with  the  rate  of 
discount  at  the  Bank  of  England;  whereas  the 
landlord  of  the  land  will  usually  charge  a  rent  con- 
sistent with  the  wealth,  or  profit,  which  the  farmer 
can  produce  from  the  land,  and  no  other  considera- 
tion weighs  with  him. 

The  more  enterprising  a  farmer  may  be,  there- 
fore, the  more  rent  will  he  have  to  pay;  and  it  is 
this  restriction,  or  penalty,  on  the  thrift  and  enter- 
prise of  the  farmer  which  must  be  destroyed  if 
national  welfare  is  to  be  advanced. 

"  Rent,  considered  as  the  price  paid  for  the  use 
of  land,  is  naturally  the  highest  which  the  tenant 
can  afford  to  pay  in  the  actual  circumstances  of 


AGRICULTURE    AND   LABOUR      209 

the  land.  In  adjusting  the  terms  of  the  lease,  the 
landlord  endeavours  to  leave  him  no  greater  share 
of  the  produce  than  what  is  sufficient  to  keep  up 
the  stock  from  which  he  furnishes  the  feed,  pays 
the  labour,  and  purchases  and  maintains  the  cattle 
and  other  instruments  of  husbandry,  together  with 
the  ordinary  profits  of  farming  stock  in  the  neigh- 
bourhood. This  is  evidently  the  smallest  share 
with  which  the  tenant  can  content  himself  without 
being  a  loser,  and  the  landlord  seldom  means  to 
leave  him  any  more.  Whatever  part  of  the  pro- 
duce, or,  what  is  the  same  thing,  whatever  part  of 
its  price  is  over  and  above  this  share,  he  naturally 
endeavours  to  reserve  to  himself  as  the  rent  of  his 
land,  which  is  evidently  the  highest  the  tenant  can 
afford  to  pay  in  the  actual  circumstances  of  the 
land.  Sometimes,  indeed,  the  liberality,  more  fre- 
quently the  ignorance,  of  the  landlord  makes  him 
accept  of  somewhat  less  than  this  portion;  and 
sometimes,  too,  though  more  rarely,  the  ignorance 
of  the  tenant  makes  him  undertake  to  pay  some- 
what more,  or  to  content  himself  with  somewhat 
less  than  the  ordinary  profits  of  farming  stock  in 
the  neighbourhood.  This  portion,  however,  may 
still  be  considered  as  the  natural  rent  of  land,  or 
the  rent  for  which  it  is  naturally  meant  that  land 
should  for  the  most  part  be  let. 

"  The  rent  of  land,  it  may  be  thought,  is  fre- 
quently no  more  than  a  reasonable  profit  or  interest 
for  the  stock  laid  out  by  the  landlord  upon  its 
improvement.  This,  no  doubt,  may  be  partly  the 
case  upon  some  occasions;  for  it  can  scarce  ever  be 
more  than  partly  the  case.  The  landlord  demands 


210  NATIONAL  SYSTEM  OF  ECONOMICS 

a  rent  even  for  unimproved  land,  and  the  supposed 
interest  or  profit  upon  the  expense  of  improvement 
is  generally  an  addition  to  this  original  rent. 
Those  improvements,  besides,  are  not  always  made 
by  the  stock  of  the  landlord,  but  sometimes  by  that 
of  the  tenant.  When  the  lease  comes  to  be  re- 
newed, however,  the  landlord  commonly  demands 
the  same  augmentation  of  rent  as  if  they  had  been 
all  made  by  his  own."  * 

The  earning  capacity  of  the  farmer,  as  is  the 
case  with  all  individuals,  is  the  difference  between 
the  cost  of  the  commodity  he  is  able  to  produce 
on,  and  from,  his  land,  or  other  equivalent  services, 
and  the  ultimate  price  he  is  able  to  obtain  for  it  on 
the  market. 

At  the  end  of  each  year  the  profits  which  the 
farmer  may  show  in  his  balance  sheet  represent  his 
earning  capacity,  or  power  to  save,  and  the  degree 
of  his  success  depends  very  largely  on  his  skill  and 
business  management.  The  whole  success  of  agri- 
cultural development,  therefore,  or  any  other  in- 
dustry, hinges  very  much  upon  this  fundamental 
factor;  but  if  the  profits  earned  by  the  farmer  be 
absorbed  by  the  landlord  in  the  form  of  rent  it 
must  necessarily  destroy  the  economic  foundation 
upon  which  the  welfare  of  the  agricultural  industry 
is  founded;  and  also  the  Industrial  activity  of  the 
country  in  general. 

1  Adam  Smith,  The  Wealth  of  Nations,  Book  I,  chapter  xi, 
pp.  127-8. 


AGRICULTURE   AND   LABOUR      211 

That  the  whole  system  requires  modification 
may  be  gathered  from  the  very  interesting  table 
of  statistics  published  by  Sir  Leo  Chiozza  Money 
in  the  Westminster  Gazette,  May  31,  1916.  The 
failure  of  the  farmer  to  increase  his  wheat  produc- 
tion to  correspond  with  the  rise  in  price,  as  indi- 
cated in  the  table,  is,  in  our  view,  entirely  due  to 
the  leasehold  system;  the  farmer  has  no  further 
interest  in  an  increase  of  production  beyond  the 
means  necessary  for  his  subsistence.  And  a  pro- 
tective tariff  alone  will  not  alter  the  position. 

"  It  might  have  been  imagined  that  the  rise  in 
prices  would  have  a  considerable  effect  upon  the 
British  wheat  acreage.  That  has  hardly  proved 
to  be  the  case,  as  the  following  table  will 
testify — 

UNITED  KINGDOM  :  WHEAT  ACREAGE  AND 
WHEAT  PRICES 


Price  of 

Price  of 

British 

British 

Acres 

Wheat 

Wheat 

..„  j__ 

per 

Acres 

per 

under 
Wheat. 

Quarter. 

under 
Wheat. 

Quarter 

s.      d. 

s.      d. 

1892 

2,299,000 

30     3 

1904 

1,407,000 

28    4 

1893 

1,955,000 

26    4 

1905 

1,836,000 

29    8 

1894 

1,980,000 

22  10 

1906 

1,801,000 

28    3 

1895 

1,456,000 

23    1 

1907 

1,665,000 

30    7 

1896 

1,734,000 

26    2 

1908 

1,665,000 

32    0 

1897 

1,939,000 

30    2 

1909 

1,868,000 

36  11 

1898 

2,158.000 

34    0 

1910 

1,858,000 

31    8 

1899 

2,055,000 

25    8 

1911 

1,952,000 

31    8 

1900 

1,901,000 

26  11 

1912 

1,972,000 

34    9 

1901 

1,746,000 

26    9 

1913 

1,791,000 

31    8 

1902 

1,773,000 

28    1 

1914 

1,906,000 

34  11 

1903 

1,621,000 

26    9 

212  NATIONAL  SYSTEM  OF  ECONOMICS 

"  In  1895  the  record  low  prices  of  1894  drove 
the  wheat  acreage  down  to  1,456,000.  With  re- 
covery of  price  the  acreage  recovered  to  over 
2,000,000  in  1898-9.  Then  prices  again  fell,  and 
in  1904  the  acreage  fell  to  the  low  record  of 
1,407,000.  During  the  next  ten  years  prices  rose 
considerably,  and  there  was  a  recovery  in  the  year 
when  war  broke  out  to  1,906,000  acres,  the  price 
of  wheat  then  being  345.  1 1  d.  Even  so,  the  wheat 
acreage  of  1914  was  nearly  400,000  acres  short  of 
1892." 

The  great  and  leading  principle  to  be  achieved 
in  the  economic  development  of  agriculture,  upon 
which  in  reality  all  industrial  activity  is  founded, 
is  to  assure  to  the  farmer  all  the  wealth  which  his 
own  energy  and  enterprise  creates;  and  it  is  only 
by  establishing  the  principle  of  ownership  that  it 
can  be  assured.  This  reform  will  prove  to  be  a 
pressing  necessity  after  the  war,  as  the  purchasing 
power  of  the  community  will  be  considerably 
reduced  as  compared  with  pre-war  days,  and  all 
legitimate  and  beneficial  measures  should  be  em- 
ployed, such  as  is  now  proposed,  to  assist  in 
stimulating  it  to  greater  activity. 

By  way  of  conclusion  it  is  perhaps  desirable  that 
we  should  draw  attention  to  the  translation  of  a 
chapter  taken  from  a  work  by  Count  von  Schwerin- 
Lowitz,  entitled  Deutschland  unter  Kaiser  Wil- 
helm  77,  published  in  Berlin  in  1914,  which  appears 


AGRICULTURE    AND   LABOUR      213 

in  Mr.   Middleton's  paper  on  the  "Recent  De- 
velopment of  German  Agriculture." 

The  following  quotations  from  it  are  submitted 
for  consideration,  and  if  it  were  only  possible  for 
the  Government  to  imbibe  some  of  the  spirit  or 
mentality  which  they  suggest,  in  so  far  as  the 
United  Kingdom  is  concerned,  we  should  be  in- 
spired with  hope  for  the  future.  The  results 
which  have  been  achieved  by  Germany  in  the 
development  of  her  agriculture  have  been  most 
remarkable,  and  if  we  had  a  stronger  national  will- 

o 

power,  it  should  be  possible  for  us  to  produce 
equally  good,  or  better,  results  in  this  country — 

"  We  turn  now  to  the  still  more  important 
question,  from  the  national  point  of  view,  of 
the  development  of  Germany's  total  agricultural 
production. 

"  One  of  our  most  important  banks,  the  Dres- 
dner  Bank,  recently  submitted  to  the  members  of 
the  Reichstag  a  remarkable  pamphlet,  entitled, 
c  The  Economic  Strength  of  Germany.'  The  fol- 
lowing statement  is  contained  in  this  pamphlet, 
the  authors  of  which  cannot  be  regarded  as  being 
in  any  way  biassed  in  favour  of  the  agrarian 
interest — 

"(The  results  of  the  harvest  show  that 
Germany,  in  spite  of  her  great  development 
as  a  manufacturing  country,  still  has  a  place 
among  the  great  agricultural  countries  of  the 


2i4  NATIONAL  SYSTEM  OF  ECONOMICS 

world — a  place  which  is  due  to  the  extra- 
ordinary advance  in  the  methods  of  intensive 
culture  practised  by  her  farmers.  In  this 
matter  Germany  stands  at  the  head  of  all  the 
purely  agricultural  countries,  a  result  which 
must  be  regarded  as  all  the  more  wonderful 
when  it  is  borne  in  mind  that  the  quality  of 
the  land  and  soil  in  Germany  is  very  much 
inferior  to  those  of  other  agricultural  coun- 
tries. The  favourable  results  of  the  harvests 
in  Germany  are  due  to  the  widespread  use  of 
scientific  methods  of  farming,  to  the  constant 
extension  of  agricultural  education,  and  to  the 
increased  use  of  artificial  manures.  Germany 
uses  as  much  potash  as  all  the  other  countries 
of  the  world  taken  together.  An  estimate  of 
the  yearly  value  of  her  production  of  the 
three  staples — corn,  meat,  and  milk — gives  a 
sum  of  nearly  five  hundred  million  pounds 
sterling.5 

"  This  estimate  of  the  total  value  of  Germany's 
agricultural  produce  as  regards  these  three  items 
is  dealt  with  in  more  detail  in  another  part  of  the 
pamphlet,  and  the  following  figures  for  1912  are 
given  :  Corn,  ;£  140,000,000;  meat,  ^200,000,000; 
and  milk,  £  13  7, 5 00,000;  that  is  for  all  three,  in 
1912,  ^"477, 500,000,  or  nearly  £500,000,000. 

"  These  figures  are  well  worth  attention,  and 
correspond  closely  with  those  obtained  by  other 
well-known  statisticians. 

"  This  figure  of  five  hundred  million  pounds 
does  not,  however,  by  any  means  represent  the 


AGRICULTURE    AND   LABOUR      215 

total  money  value  of  Germany's  agricultural  pro- 
duction. To  obtain  such  a  figure  it  would  be 
necessary  to  include  the  money  value  of  the 
potatoes,  vegetables,  and  fruit  used  as  human  food, 
the  potatoes  used  in  making  spirit  and  starch,  beet 
used  in  the  manufacture  of  sugar,  crops  producing 
oil  and  fibre,  the  grapes  used  in  making  wine, 
poultry  and  fish,  and,  in  addition,  the  produce  of 
the  forests  in  the  form  of  wood  and  game.  For 
most  of  these,  reliable  estimates  as  to  their  total 
amount  and  value  are  not  available,  but  they  must 
all  be  counted  as  part  of  the  total  agricultural 
production,  and  they  represent  a  considerable 
value  in  money. 

"  I  think  that  all  who  read  without  prejudice 
what  I  have  herein  stated  will  agree  with  me  that, 
in  spite  of  the  extremely  difficult  and  critical 
position  in  which  German  agriculture  was  placed 
in  the  first  years  of  the  reign  of  Wilhelm  II,  it  was 
able  to  collect  its  strength  and  make  a  determined 
endeavour,  by  the  full  use  of  the  new  advances  in 
agricultural  technique  and  improved  methods  of 
cultivation,  not  only  to  overcome  the  difficulties 
which  beset  it,  but  also  to  carry  out  more  fully  the 
duty  which  it  owed  to  the  Fatherland  of  producing 
to  the  greatest  extent  possible  the  food  required 
by  the  German  people.  And  it  may  well  be  said 
that  these  endeavours  have  been  rewarded  with 
visible  success;  as  regards  technical  methods, 
German  agriculture  stands  to-day — as  stated  in 
the  brochure  of  the  Dresdner  Bank,  referred  to 
above — unchallenged  at  the  head  of  all  the  agri- 


216  NATIONAL  SYSTEM  OF  ECONOMICS 

cultural  countries  of  the  world.  This  is  suf- 
ficiently proved  by  the  fact  that,  in  spite  of  the  poor 
quality  of  our  soil  and  the  unfavourable  nature  of 
our  climate,  our  corn  crops  show  a  yield,  acre  for 
acre,  considerably  greater — more  than  thirty  per 
cent. — than  those  of  all  other  agricultural  countries. 
"  Nothing  could,  however,  be  worse  than  for 
our  farmers  to  believe  that  they  may  rest  satisfied 
with  the  honours  already  gained,  thinking  that 
they  have  attained  the  summit  of  technical  per- 
fection, or  that  the  view  should  be  taken  that, 
economically  speaking,  the  highest  possible  pro- 
duction per  acre  has  already  been  reached.  The 
opposite  view  is  the  right  one.  At  the  present 
time  in  almost  all  branches  of  agriculture — in  the 
proper  use  of  artificial  manures,  the  choice  and 
breeding  of  seed,  the  use  of  machines  to  economise 
labour,  the  rational  use  of  feeding  stuffs,  the  im- 
provement of  our  breeds  of  live  stock,  and  the 
drainage  and  cultivation  of  our  moors  and  waste 
land — we  only  stand  at  the  very  beginning  of  a 
full  and  universal  employment  in  the  practice  of 
agriculture  of  the  great  scientific  and  technical 
advances  which  have  been  made  during  the  past 
fifty  years.  It  is  a  matter  of  common  knowledge 
that  these  discoveries  and  improvements  have  not 
been  adopted  generally  by  the  small  farmers,  by 
whose  hands  the  greater  part  of  German  agriculture 
is  carried  on.  To  bring  the  results  of  recent 
advances  in  knowledge  home  to  these  farmers  is 
the  great  task  which  our  system  of  agricultural 
education  will  have  to  carry  out  in  the  near  future. 


AGRICULTURE    AND   LABOUR      217 

Although  in  the  last  twenty-five  years  there  has 
been  a  considerable  increase  (they  have  been  ap- 
proximately trebled)  in  the  number  of  our  agri- 
cultural schools,  we  stand  in  this  respect,  too,  at 
the  beginning  of  what  must  be  done.  The 
scientific  and  technical  improvements  have  been 
evolved,  and  they  only  need  to  become  known  and 
put  into  practice  by  all,  or  at  least  the  majority  of 
our  farmers  in  order  that  the  great  aim  of  our  agri- 
cultural policy — the  production  at  home  of  all  our 
food — may  be  attained." 

The  italics  are  ours.  But  in  these  last  few  words 
is  to  be  observed  the  basic  principle  upon  which 
the  whole  German  policy  of  nationality  is  founded. 
German  intellect  has  shown  a  much  greater  appre- 
ciation of  Adam  Smith's  dictum,  "  Defence  is  of 
more  importance  than  Opulence."  This  basic 
principle  permeates  the  whole  of  their  national 
policy,  both  as  regards  industry,  agriculture,  and 
transportation;  and  it  is  entirely  due  to  this 
studious  application  of  it  throughout  all  phases 
of  their  national  life  that  we  now  experience  the 
extraordinary  offensive  and  defensive  powers  of 
Modern  Germany. 

In  other  words,  German  intellect  has  been  quietly 
developing  the  substance  whilst  we  have  been 
chasing  the  shadows.  Let  us  hope,  then,  that  the 
future  may  show  our  determination  to  profit  from 
the  experience  gained  by  the  nation  being  in  a 


2i8  NATIONAL  SYSTEM  OF  ECONOMICS 

state  of  war,  and  that  we  may  see  a  revolutionary 
change  in  our  general  mentality  towards  the  doc- 
trine of  nationality.  We  have  the  inherent  quali- 
ties if  we  would  but  exercise  them.  As  Bacon  has 
so  wisely  said,  "  He  that  will  not  apply  new 
remedies  must  expect  new  evils.  It  were  good, 
therefore,  that  men  in  their  innovations  follow  the 
example  of  time  itself;  which  indeed  innovateth 
greatly,  but  quietly,  and  by  degrees  scarce  to  be 
perceived.  Time  is  the  measure  of  business  as 
money  is  of  wares." 


CHAPTER   VIII 

ON   THE   GENERAL   THEORY   OF 
TRANSPORTATION 

WE  now  come  to  the  final,  though  not  the  least 
important,  of  the  problems  that  require  considera- 
tion— namely,  transportation.  As  no  individual 
producer  can  live  unto  himself,  it  similarly  follows 
that  no  phase  of  industrial  activity,  whether  it  be 
in  industry  or  agriculture,  can  exist  by  itself. 
Although  an  individual  may  retain  his  own  indi- 
viduality, he  is  nevertheless  surrounded  by  other 
individuals,  and  this  same  principle  applies  to  all 
groups  or  sub-groups  of  activity. 

In  any  consideration,  therefore,  which  we  may 
give  to  agricultural  or  industrial  questions,  it  is 
necessary  to  bear  in  mind  the  fundamental  import- 
ance of  transportation  and  its  ultimate  influence 
upon  them. 

The  transportation  and  storage  in  elevators  of 
wheat,  and  the  transportation  of  other  farming 
produce  to  markets,  is  to  the  farmer,  as  it  is  also 
to  the  manufacturer,  a  most  vitally  important 
problem.  Transportation  is  not  only  a  funda- 
mentally important  element  in  our  economic  or 

219 


220  NATIONAL  SYSTEM  OF  ECONOMICS 

business  life,  but  it  is  also  a  producer  of  wealth. 
The  railway  company  in  transporting  all  natural 
materials  to  manufacturing  centres  performs  a 
service  essential  to  our  economic  life,  inasmuch 
as  the  natural  materials  may  subsequently  go 
through  various  forms  of  development  such  as  to 
advanced  material,  then  to  finished  material,  and 
finally  into  manufactured  utilities.  In  their 
various  stages  of  development  it  may  be  necessary 
to  transport  them  from  one  factory  to  another  to 
go  through  a  process  of  development  peculiar  to 
the  factory  which  may  purchase  them. 

Transportation,  therefore,  is  not  only  rendering 
a  valuable  service,  but  it  is  also  assisting  in  creating 
value  to  the  materials.  It  has  transported  the 
materials  from  a  manufacturing  centre  in  which 
the  demand  for  them  is  perhaps  small,  to  a  manu- 
facturing centre  where  the  demand  for  them  is 
perhaps  considerable.  Without  the  services  of 
the  transportation  companies,  therefore,  exchange 
values  could  not  be  created  nor  maintained,  and 
this  applies  equally  to  natural  materials,  advanced 
materials,  finished  materials,  or  manufactured 
utilities,  as  well  as  to  agricultural  produce.  It  is 
the  facility  with  which  utilities  and  commodities 
may  be  delivered  to  the  consumer  which  creates 
the  demand  and  so  maintains  industry  in  activity 

1  Principles  of  Wealth  and  Welfare,  Professor  Charles  Lee 
Raper. 


THEORY    OF   TRANSPORTATION    221 

to  a  greater  or  lesser  degree;  similarly,  it  is  this 
facility  which  enables  exchange  values  to  be  main- 
tained, and  which  in  turn  stimulates  further 
demand. 

From  this  it  will  be  gathered  that  the  services 
which  the  transportation  companies  render  in  pro- 
duction are  just  as  important  as  the  services  which 
are  rendered  by  capital,  management  and  labour. 
They  facilitate  the  bringing  together  of  the  pro- 
ducer and  the  consumer,  and  are  consequently  one 
of  the  greatest  means  of  economic  progress  in 
civilisation.  This  proposition  applies  with  equal 
force  to  motor  transportation  as  to  railway  and 
shipping  transportation. 

It  is  the  great  importance  which  transportation 
has  upon  exchange  values  which  renders  it  neces- 
sary to  consider  the  charges  which  the  railway 
companies  and  shipowners  make  for  the  services 
they  render.  It  obviously  follows  that  if  these 
charges  be  high,  the  facility  with  which  utilities 
and  commodities  can  be  exchanged  decreases;  if, 
on  the  other  hand,  the  charges  that  are  made  be 
low,  or  reasonable,  and  conform  in  practice  to  the 
charges  which  are  made  in  other  competitive 
nations,  the  facility  with  which  utilities  and  com- 
modities may  be  exchanged  increases;  by  reason 
of  the  fact  that  the  area  of  distribution  becomes 
widened  owing  to  the  greater  distance  to  which 
this  merchandise  may  be  despatched  in  consequence 


222  NATIONAL  SYSTEM  OF  ECONOMICS 

of  the  lower  rates.  In  other  words,  the  ultimate 
cost  to  the  consumer,  including  cost  of  delivery, 
will  always  remain  the  determining  factor  with 
him  in  the  placing  of  orders. 

In  our  study  of  the  economic  life  of  Ireland 
we  have  found  this  to  be  the  main  difficulty  from 
which  it  suffers.  The  transportation  facilities— 
i.  e.  railway  and  shipping — which  it  now  possesses 
are  totally  inadequate  to  the  needs  of  the  country; 
these  are  not  half  so  good  as  those  that  exist 
between  any  of  the  Scandinavian  countries  and 
Great  Britain.  Yet  there  is  no  technical  reason 
whatsoever  why  Ireland  could  not  supply  us  with 
the  commodities  we  now  feel  we  are  obliged  to 
purchase  in  Norway,  Sweden,  Denmark  or  Hol- 
land, if  our  national  will  were  so  disposed. 

If  the  services  rendered  by  the  transportation 
companies,  therefore,  are  not  efficient  and  reason- 
able, in  so  far  as  charges  may  be  concerned,  our 
economic  life  will  remain  stultified  in  its  progress; 
and  there  are  many  people  who  argue,  and  not 
unreasonably,  that  the  backward  condition  of  our 
agricultural  industry  is  mainly  attributable  to  the 
present  inefficient  services  which  are  rendered,  both 
as  to  transportation  and  storage  facilities,  by  the 
British  railway  transportation  companies,  as  com- 
pared with  the  services  which  are  rendered  by 
foreign  railway  companies  to  their  respective 
nationalities. 


THEORY   OF  TRANSPORTATION    223 

The  modern  tendency  everywhere  is  towards  a 
greater  specialisation  in  the  production  of  utilities 
and  commodities,  and,  ipso  facto,  towards  greater 
and  more  extensive  exchange  of  these  same  utili- 
ties and  commodities;  but  this  tendency,  or  de- 
velopment, mainly  if  not  wholly,  depends  upon  the 
efficiency  of  the  services  rendered,  and  the  charges 
made  in  connection  therewith,  by  the  transport- 
ation companies. 

James  J.  Hill  once  said  that  "  transport  is  being 
strangled  by  its  own  increase";  but  as  the  trans- 
portation services  of  the  country  are  its  most  vital 
and  fundamental  economic  force,  it  is  essential  that 
they  should  be  efficiently  managed,  and  that  the 
management  should,  by  every  possible  means, 
always  endeavour  to  anticipate  the  future  require- 
ments and  needs  of  industry  and  agriculture,  in  so 
far  as  transport  may  be  concerned. 

On  the  other  hand,  there  are  certain  traders  who 
expect  unreasonable  services  from  the  railway  com- 
panies by  despatching  small  parcels,  each  of  which 
is  expected  to  be  delivered  that  day  or  the  next 
morning  without  fail.  There  is  a  large  quantity 
of  this  traffic,  and  it  may  be  due  to  this  that  the 
British  system  has  grown  up  on  lines  which  are 
known  to  be  peculiar  to  itself;  but  to  whatever  it 
may  be  due,  it  will  be  necessary  for  railway 
managers  to  reconsider  the  general  theory  of  trans- 
portation and  conform,  in  so  far  as  it  may  be 


224  NATIONAL  SYSTEM  OF  ECONOMICS 

possible,  to  modern  economic  practice — i.  e.  trans- 
portation in  bulk,  and  at  the  lowest  possible  rates 
consistent  with  the  capital  invested  in  the  business. 
The  design  of  the  average  freight  wagons  on 
British  railways,  and  the  method  of  shunting  them 
for  discharging  their  loads,  appear  to  us  primitive 
and  crude.  There  seems  to  be  plenty  of  scope 
for  some  creative  and  inventive  genius  to  intro- 
duce more  businesslike  arrangements. 

There  can  be  no  complaint  with  regard  to  the 
locomotives  employed,  which  seem  to  embody 
the  latest  mechanical  science,  since  their  haul- 
ing capacity  and  general  cost  of  maintenance 
has  improved  by  at  least  fifteen  per  cent.  The 
weakness  appears  to  be  in  the  handling  and 
design  of  the  trucks,  and  in  the  general  method 
of  distributing  the  goods  that  are  conveyed  by 
them. 

Commerce,  the  business  of  the  merchant,  may 
be  defined  as  the  instrument  which  brings  the 
producer  and  consumer  together;  which  exchanges 
manufactured  utilities  for  commodities  between 
one  phase  or  the  other,  or,  in  each  separately;  and 
the  goods — i.  e.  utilities  and  commodities,  which 
thus  pass  through  the  hands  of  the  merchant  are 
classified  by  him  as  merchandise;  but  transporta- 
tion is  in  reality  the  means  which  effect  these 
objects;  and  whilst  these  aspects  may  be  separated 
in  our  discussion,  and  to  an  extent  in  actual  busi- 


THEORY   OF  TRANSPORTATION    225 


ness,  they  are  nevertheless  very  closely  and  vitally 
allied  to  each  other. 

Similarly,  the  development  of  our  Foreign 
Exchanges  would  be  equally  impossible  without 
the  requisite  transportation  facilities,  and,  ipso 
facto,  transportation  without  a  system  of  exchange 
would  also  be  impossible.  It  is  these  factors  co- 
operating together  which  facilitate  the  distribution 
of  merchandise  abroad  and  the  importation  of  the 
necessary  materials  essential  to  their  production. 

We  will  now  proceed  to  examine  the  rates 
charged  by  the  British  railway  companies  for  the 
transportation  of  merchandise  per  ton  per  mile,  as 
compared  with  those  charged  in  foreign  countries. 
The  following  figures  are  taken  from  the  work  by 
Mr.  Slason  Thompson,  Secretary  of  the  Railway 
Managers'  Association  of  Chicago,  and  are,  no 
doubt,  authoritative — 


United  Kingdom 

Denmark 

Norway 

France 

Germany 

Holland 


d. 

1-192 
0-956 
0-867 
0-726 
0-637 
0-590 


The  above  figures  indicate  how  manufacturers 
and  farmers  in  the  United  Kingdom  are  handi- 
capped by  the  higher  cost  of  transportation  which 
they  have  to  pay  as  compared  with  their  com- 
petitors in  foreign  countries;  it  would,  perhaps, 
Q 


226  NATIONAL  SYSTEM  OF  ECONOMICS 

be  advisable  if  the  railway  managers  were  to  in- 
vestigate the  problem  and  see  what  could  be  done 
towards  assisting  the  manufacturers  and  farmers 
in  the  matter  of  conceding  lower  rates. 

The  only  means  by  which  they  can  perhaps  do 
this  is  to  secure  keener  business  management,  in- 
telligence, and  enterprise  in  the  management  of 
their  respective  railway  companies,  and  by  reducing 
their  transportation  charges  to  conform  more  to 
the  rates  which  are  payable  by  manufacturers  in 
foreign  countries;  if  there  are  any  other  diffi- 
culties in  the  way  they  should  be  frankly  stated, 
in  order  that  they  may  be  considered  by  the  public. 

It  has  been  stated  by  Mr.  A.  W.  Gattie,  in  a 
lecture  before  the  South  Eastern  &  Chatham  Rail- 
way Research  Association,  that  during  the  last 
forty  years  the  expenditure  of  the  British  railway 
companies  has  increased  by  two  hundred  and  ninety 
per  cent.,  and  that  receipts  have  increased  by  only 
two  hundred  per  cent.  A  great  deal  of  explanation 
is  no  doubt  required  to  explain  this  excessive  rise 
in  expenditure,  but  if  British  railway  management 
had  been  on  a  sound  basis,  and  had  conducted  its 
business  more  in  accordance  with  modern  economic 
practice,  we  believe  that  a  large  proportion  of  this 
expenditure  could  have  been  saved. 

We  have  heard  a  great  deal  of  late  of  the  need 
for  a  Goods  Clearing  House  System,  and  if  the 
information  which  is  conveyed  in  support  of  the 


THEORY   OF  TRANSPORTATION    227 

scheme  is  in  any  way  justified,  this  would  seem 
to  us  to  be  a  direction  in  which  the  managers  of 
the  railway  companies  may  usefully  turn  their 
attention  as  a  means  of  reducing  the  general  cost 
of  transportation. 

A  large  proportion  of  the  increased  expenditure 
referred  to  above  appears  to  be  incurred  at  the 
goods  terminals.  Mr.  Gattie  describes  a  terminal 
as  a  point  of  arrival  and  departure,  and  suggests 
that  it  should  be  placed  where  one  journey  ends  and 
another  begins.  Thus,  supposing  a  load  of  mer- 
chandise has  to  travel  from  one  railway  to  another, 
the  terminal  should  command  both,  so  as  to  facili- 
tate its  progress.  The  load,  not  the  wagon,  should 
be  transhipped  in  bulk  from  one  system  to  another. 
In  his  opinion  there  would  be  no  waste  of  time, 
or  space,  or  labour,  and  no  damage  to  goods  or 
rolling  stock.  Whereas,  by  shifting  the  truck  as 
well  as  the  load  a  great  amount  of  energy  is  wasted, 
and  an  enormous  amount  of  empty  wagon  haulage 
involved. 

The  same  authority  is  of  the  opinion  that  the 
railway  companies  do  not  make  sufficient  profits 
out  of  their  terminals,  and  that  the  high  charges 
which  are  made  by  British  railway  companies 
for  the  transportation  of  merchandise  is  mostly 
absorbed  in  the  handling  of  the  goods  at  the 
terminals. 

The  following  particulars  have  been  taken  from 


228  NATIONAL  SYSTEM  OF  ECONOMICS 

Mr.  Gattie's  lecture,  and  are  most  instructive  and 
illuminating  — 

"  How  a  Load  of  4^  Tons  of  Goods  would  travel  from 
London  (Edmonton)  to  Nottingham  via  the  Clearing  House, 
and  the  Cost  of  Transport  of  same. 

£    '•       d- 

(1)  From  Edmonton  to  the  Clearing  House 

by  Motor  Lorry,  by  road,  4^  tons 
hauled  7  miles  =31*5  ton  miles  at 
i  s.  per  ton  mile  of  goods  .  4  I  II  6 

(2)  From  the  Clearing  House  to  Notting- 

ham by  rail. 

4j  tons  of  goods. 
I  ton  container. 
6  tons  railway  wagon. 

llj  tons  hauled  125  miles  = 
1437-5  ton  miles  at  \d.  per 
ton  mile,  goods  and  tare  .  1911 

(3)  From  Nottingham  Station  to  Notting- 

ham by  road,  4^  tons  hauled  half  a 
mile  =  2j  ton  miles  at  (say)  2s.  64. 
per  ton  mile  of  goods  .  .  o  5  7j 

Clearing-House  toll  covering  trans- 
shipment charges  at  both  ends, 
4^  tons  at  $s.  per  ton  .  .  .116 

Hire  of  Container  at  ^d.  per  hour  for 

12  hours  .  .  .  .  »  .  .  o  4  o 


4  '3     6J 

Margin    on   which    to    compete  with 

Motor  Lorry  haulage    .,      •:        .       8     6     5^ 


13 


"  The  total  cost  of  sending  these  goods  by  rail- 
way would  have  been  ^"14  us.  vd.     The  work 


THEORY   OF  TRANSPORTATION    229 


done  could  be  done  for  £4.  135.  6^d.  at  a  big 
profit.  There  are  four  railways  running  to  Not- 
tingham, and  therefore  the  route  is  fairly  competi- 
tive, and  ^14  ii5.  od.  is  the  total  cost,  and  forty 
hours  the  time  required.  Via  the  Clearing  House 
the  time  would  be  about  six  or  seven  hours. 

"  In  this  instance,  the  gross  terminal  loss  dis- 
covered is  £y  175.  6d.,  or  over  £2  per  ton." 


Mr.  Gattie  believes  that  the  real  remedy  is  for 
the  railway  companies  to  load  and  unload  in  bulk, 
and  he  proceeds  as  follows  — 

"Let  us  now  examine  the  result  of  terminal 
inefficiency. 

"  You  all  know  that,  despite  your  density  of 
traffic  having  almost  doubled  during  the  past  fifty 
years,  and,  despite  improved  efficiency  and  tractive 
power  of  the  locomotive,  your  expenditure  has 
increased  in  far  greater  ratio  than  your  gross 
receipts. 

"  Under  ordinary  circumstances  the  increase  in 
expenditure  of  a  growing  business  should  be  in 
a  decreasing  ratio  to  the  increase  of  the  gross 
receipts. 

"  Had  terminal  organisation  kept  abreast  with 
increase  of  traffic,  the  ratio  of  expenditure  to  gross 
receipts  would  have  fallen  instead  of  having  risen. 
I  say  that,  although  we  must  bear  in  mind  that  it 
has  been  pleaded  that  dead-weight  haulage  of  pas- 
senger trains  has  in  some  cases  quadrupled.  An 
appeal  to  figures  conclusively  proves  that  haulage 


230  NATIONAL  SYSTEM  OF  ECONOMICS 

is  not  responsible  for  railway  losses,  and  it  certainly 
does  not  touch  goods  traffic. 

Under  the  circumstances  I  am  going  to  lay 
before  you,  I  do  not  think  it  unreasonable  to  postu- 
late that  the  ratio  might  have  fallen  from  47  per 
cent,  in  1860 — the  days  of  iron — to  33  per  cent, 
in  these  days  of  steel.  If  that  supposition  is 
justified,  we  should  have  a  railway  expenditure  of 
about  ^"40,000,000  per  annum  instead  of  about 
^80,000,000  per  annum. 

"  This  diagram  shows  that  the  expenditure  from 
1869  to  1912  has  increased  290  per  cent.,  which 
is  coincident  with  an  increase  of  201  per  cent,  in 
the  gross  receipts.  As  against  this,  I  have  seen 
it  stated  that  this  abnormal  increase  of  expenditure 
is  due  to  three  causes — 

1.  Increased  demands  of  labour; 

2.  Increased  cost  of  material; 

3.  Increased  taxation. 

"  Unfortunately,  this  explanation  is  hardly  in 
accord  with  facts.  This  half-truth  has  done  a  great 
deal  of  harm,  because  it  has  obscured  the  real 
solution  of  the  problem. 

"It  is  quite  true  that  the  cost  of  some  materials 
used  by  railways  has  increased;  in  others  it  has 
remained  steady,  and  in  yet  others  it  has  greatly 
decreased.  Steel  is  one  of  the  chief  materials  used 
by  railways,  but  from  the  particulars  I  have  given 
it  shows  a  drop  in  price  from  ^78  per  ton  to  £11 
per  ton. 


THEORY   OF  TRANSPORTATION    231 

"  When  you  remember  that  rails  are  made  of 
steel,  and  the  tyres  and  axles  are  made  of  steel, 
and  the  bridges  and  stanchions  and  buffers,  and 
springs  and  boiler-plates,  and  when  you  bear  in 
mind  that,  together  with  this  enormous  drop  in 
price,  there  has  been  a  considerable  improvement 
in  quality,  and  consequent  durability,  you  will 
realise  that  the  real  decrease  in  the  cost  of  this 
material  has  been  prodigious. 

"  Cheap  steel  ought  to  have  meant  cheap  trans- 
port, but  lack  of  organisation  neutralised  its 
benefits.  Cheap  steel, plus  the  work  of  the  modern 
locomotive  engineer,  has  given  us  cheap  haulage. 
Cheap  steel,  plus  the  work  of  the  modern  electrical 
engineer,  can  give  us  cheap  terminals.  With 
cheap  haulage  and  cheap  terminals,  you  have  cheap 
transport." 

The  italics  are  ours.  We  have  no  interest 
whatever  in  Mr.  Gattie's  scheme  for  a  Goods 
Clearing  House  System  beyond  the  economic 
aspect  of  it,  nor  are  we  acquainted  with  the 
gentleman;  but  it  cannot  be  denied  that  his  logic 
is  sound,  and  is  strongly  supported  by  reasoned 
statements. 

It  has  been  said  that  the  reason  for  the  higher 
charges  made  by  British  railway  companies  for 
the  transport  of  merchandise  is  due  to  the  increased 
cost  of  labour,  material,  and  coal.  But  from  the 
particulars  which  have  been  submitted  this  state- 
ment is  not,  in  the  main,  justifiable. 


232  NATIONAL  SYSTEM  OF  ECONOMICS 

The  same  argument  could  be  applied  to  all 
industrial  establishments,  but  it  is  common  know- 
ledge that  the  ratio  of  expenditure  in  all  successful 
companies  decreases  with  the  increase  in  turnover, 
and  it  is  only  reasonable  to  assume  that  these  same 
principles  should  be  applicable  to  railway  com- 
panies. At  any  rate,  foreign  railway  companies 
seem  to  occupy  infinitely  superior  positions,  if  the 
measure  of  their  success  be  reflected  in  the  rates 
which  they  charge  for  transportation  of  mer- 
chandise per  ton  per  mile,  and  there  can  be 
no  reason  for  any  one  to  assume  that  railway 
enterprise  in  the  United  Kingdom  is  an  industry 
peculiar  to  itself. 

On  the  other  hand,  we  prefer  to  appeal  to  the 
patriotism  of  the  gentlemen  who  control  the  rail- 
way transportation  companies  in  the  United 
Kingdom  to  use  their  influence  towards  intro- 
ducing vitality  and  keener  business  management 
into  the  administration  of  their  respective  organisa- 
tions, so  that  the  economic  development  of  manu- 
facture and  agriculture  may  not  be  stultified  in 
their  progress.  Should  this  fail,  it  may  then  be 
necessary  to  consider  the  question  of  the  national- 
isation of  the  railways  in  order  to  obtain  the 
desired  result.  It  may  be,  of  course,  that  the 
present  failure  of  the  railway  managements  is  due 
to  over  capitalisation;  but  even  for  this  there  is  a 
remedy  if  they  desire  to  seek  one — namely,  an 


THEORY   OF  TRANSPORTATION    233 

all-round  reduction  by  writing  off  such  capital  as 
is  not  represented  by  tangible  assets.1 

1  We  take  the  advantage  of  an  opportunity  of  adding  the 
following  from  the  preface  to  Frederick  List's  National  System 
of  Economy,  tt  is  by  Mr.  Matilde,  and  he  informs  us  that  as  a 
promoter  of  railroads  few  could  have  done  more  than  List. 
The  discovery  by  List  of  the  coal  mines  of  Tamaqua,  and  the 
construction  of  the  railroad  connected  with  it,  gave  a  vigorous 
impulse  to  his  studies  on  public  economy.  In  this  connection 
List  wrote  as  follows  :  "  I  have  not  hitherto  comprehended  the 
importance  of  ways  of  communication,  except  according  to 
the  theory  of  values  ;  I  had  not  noticed  their  results  except  in 
their  details,  and  with  regard  to  the  extension  of  markets,  as 
well  as  to  the  diminution  of  the  prices  of  material  products. 
Then  I  commenced  to  consider  them  in  view  of  the  theory  of 
productive  power,  and  in  their  collective  action  as  a  national 
system  of  communications,  consequently  in  relation  to  their 
influence  upon  the  moral  and  political  existence,  upon  the 
social  connexions,  the  productive  forces,  and  the  power  of 
nations."  For  his  labours  in  this  respect,  and  in  others, 
Germany,  wrote  Matilde,  owes  him  a  debt  of  gratitude. 


CHAPTER    IX 

ON  THE  RELATIVE  SYSTEMS  OF  POLI- 
TICAL ECONOMY  AND  NATIONAL 
ECONOMICS 

WE  have  deemed  it  advisable  to  write  a  con- 
cluding essay  to  this  work,  for  reasons  which  have 
been  stated  in  the  Postscript  at  the  beginning  of 
the  book. 

It  is  necessary  to  refer  to  Frederick  List's 
National  System  of  Political  Economy,  inasmuch 
as  the  principles  which  it  contains  are  very  similar 
in  character  to  those  we  have  enunciated :  the 
difference  being,  however,  in  the  method  of  ap- 
plication, which  will,  no  doubt,  be  generally 
recognised  as  being  the  essence  of  any  scheme  or 
idea. 

But,  apart  from  this  aspect  of  the  question,  it 
affords  us  an  opportunity  of  concluding  with  a 
general  summary  of  what  we  have  written,  defining, 
as  far  as  may  be  possible  in  the  limited  time  and 
space  we  have  at  our  disposal,  the  term  political 
economy,  and  also  giving  a  definition  of  our 
own  system  of  national  economics  based  upon 
freedom  of  trade. 


ECONOMIC   SYSTEMS  235 

As  List  states  in  his  introduction,  no  branch  of 
political  economy  presents  a  greater  diversity  of 
view  between  men  of  theory  and  men  of  practice 
than  that  which  treats  of  international  commerce 
and  commercial  policy;  but  to  those  students 
who  desire  to  study  "  national  economics "  we 
would  recommend  a  perusal  of  The  Wealth  of 
Nations,  by  Adam  Smith,  and  The  National  System 
of  Political  Economy,  by  Frederick  List,1  as  being 
the  only  two  works  worth  studying.  As  Mr. 
Matilde,  the  translator  of  List,  has  said,  "  They 
offer  a  mode  of  reconciling  theory  with  practice, 
and  render  political  economy  accessible  to  every 
cultivated  mind;  a  science  which  has  hitherto,  by 
its  pompous,  scientific  phraseology,  its  contradic- 
tions, and  its  vicious  terminology,  defied  com- 
prehension and  resisted  common  sense." 

There  is  one  mistake  which  List  has  made,  how- 
ever, and  that  is  that  he  has  misinterpreted  Adam 
Smith;  but  the  error  is  not  one  peculiar  to  him 
alone — it  is,  unfortunately  for  Smith,  more  or  less 
a  universal  one.  On  page  102  List  has  the 
following — 

"  But  how  and  why  could  a  mind  so  penetrating 
abstain  from  so  interesting  and  fruitful  an  in- 
vestigation? The  only  motive  we  can  suggest, 

i  We  recommend  the  American  translation,  as  the  student 
will  then^have  the  benefit  of  the  notes  and  preliminary  essay 
by  Stephen  Colwell,  which  are  most  excellent. 


236  NATIONAL  SYSTEM  OF  ECONOMICS 

was  that  it  would  have  conducted  him  to  results 
little  suited  to  confirm  his  principle  of  absolute 
free  trade.  He  could  not  have  failed  to  perceive 
that,  after  free  trade  with  the  Hanseatic  cities  had 
raised  English  agriculture  above  its  early  imper- 
fections, the  restrictive  policy  adopted  afterwards 
by  the  government  had  raised  England  at  the 
expense  of  the  League,  of  the  Belgians,  and  of  the 
Dutch,  to  undisputed  manufacturing  and  com- 
mercial supremacy. 

"  It  appears  that  Adam  Smith  was  unwilling  to 
know  or  to  admit  these  facts;  they  belonged, 
apparently,  to  that  class  of  stubborn  events  which 
J.  B.  Say  confesses  to  have  been  rebels  to  his 
system." 

Now,  throughout  the  whole  of  the  Wealth  of 
Nations  there  is  not  to  be  found  an  expression 
such  as  List  would  attribute  to  Smith — namely, 
"absolute  free  trade";  but  we  do  find  expres- 
sions such  as  "  freedom  of  trade "  and  "  the 
importation  of  foreign  goods,"  both  of  which 
expressions,  and  their  meaning,  have  no  relation 
whatsoever  to  "  absolute  free  trade."  Smith,  as 
we  have  more  than  once  stated,  was  not  an  advo- 
cate  of  free  trade,  but  an  advocate  of  "  national 
economy  based  on  freedom  of  trade,"  and  the 
principles  he  enunciates  favour  that  view.1  The 
spirit  of  his  doctrine  was  that  individuals  should 

1  For  further  reference  see  page  12  herein. 


ECONOMIC   SYSTEMS  237 

be  left  to  pursue  their  own  interests  and  trade  in 
their  own  way,  so  long  as  they  conformed  to  the 
rules  of  justice,  i.  £.,  in  other  words,  laws  and 
regulations."  If,  therefore,  his  work  was  studied 
from  this  standpoint  its  greatness  would  be  more 
appreciated. 

It  will,  however,  be  obvious  that  the  moment 
an  economic  science  becomes  subject  to  laws  and 
regulations  it  follows  a  system  which  is  inconsistent 
with  the  principles  underlying  the  doctrine  of 
Laissez  faire,  Laissez  passer. 

Although  it  is  well  known  that  Smith  took  a 
keen  interest  in  the  work  of  the  physiocrats,  yet  it 
is  quite  clear  from  his  writings  that  he  refused  to 
come  under  their  influence  entirely,  inasmuch  as 
he  stipulates  that  "  defence  is  of  more  importance 
than  opulence,"  and  that  "it  will  generally  be 
advantageous  to  lay  some  burden  upon  foreign 
for  the  encouragement  of  domestic  industry,  when 
some  tax  is  imposed  at  home  upon  the  produce 
of  the  latter.  In  this  case  it  seems  reasonable  that 
an  equal  tax  should  be  imposed  upon  the  like 
produce  of  the  former.  This  would  not  give  the 
monopoly  of  the  home  market  to  domestic  in- 
dustry, nor  turn  towards  a  particular  employment 
a  greater  share  of  the  stock  and  labour  of  the 
country  than  what  would  naturally  go  to  it." 

It  should  be  remembered  that  at  the  time  Smith 
wrote  his  great  work  on  the  Wealth  of  Nations 


238  NATIONAL  SYSTEM  OF  ECONOMICS 

he  was  directing  his  attention  to  the  destruction 
of  the  mercantile  system,  the  essence  of  which  was 
high  tariff  duties,  absolute  prohibitions,  and  the 
granting  by  the  State  of  monopolies  and  privileges 
to  certain  companies  for  exploitation. 

Smith,  in  his  wisdom,  was  far  too  astute  not 
to  realise  that  it  was  impossible  for  him,  in  laying 
the  foundations  of  a  new  national  system,  to  lay 
down  the  definitive  lines  along  which  it  should 
ultimately  proceed.  Nor  could  any  one,  having 
regard  to  the  primitive  condition  of  the  science, 
and  for  that  matter  of  all  other  sciences,  reasonably 
expect  him  to  do  so.  Smith,  in  our  view,  ex- 
hibited very  great  wisdom  in  mainly  concerning 
himself  with  the  development  of  his  first  principles 
and  of  that  great  discovery,  the  division  of  labour; 
he  would  have  indeed  been  superhuman  had  he 
been  able  to  perceive  the  full  scope  of  that  dis- 
covery, or  pursue  it  to  its  logical  conclusion. 
That  Smith  was  exceedingly  cautious  in  this 
respect  may  be  gathered  from  the  preface  which 
he  wrote  to  the  third  edition  of  his  great  work, 
as  follows — 

"  The  first  edition  of  the  following  work  was 
printed  in  the  end  of  the  year  1775  and  in  the 
beginning  of  the  year  1776.  Through  the  greater 
part  of  the  book,  therefore,  whenever  the  present 
state  of  things  is  mentioned,  it  is  to  be  understood 


ECONOMIC   SYSTEMS  239 

of  the  state  they  were  in,  either  about  that  time, 
or  at  some  earlier  period,  during  the  time  I  was 
employed  in  writing  the  book.  To  the  third 
edition,  however,  I  have  made  several  additions, 
particularly  to  the  chapter  upon  Drawbacks,  and 
to  that  upon  Bounties;  likewise  a  new  chapter 
entitled,  c  The  Conclusion  of  the  Mercantile 
System ; '  and  a  new  article  to  the  chapter  on  the 
expenses  of  the  sovereign.  In  all  these  additions, 
the  present  state  of  things  means  always  the  state 
in  which  they  were  during  the  year  1783  and  the 
beginning  of  the  year  1784." 

The  italics  are  Smith's,  and  clearly  indicate  the 
emphasis  he  desired  to  lay  on  this  aspect  of  the 
question.  Yet  how  many  people  are  there  who 
are  prepared  to  place  themselves  in  his  situation, 
or  will  bear  in  mind  the  economic  conditions  such 
as  he  found  them,  and  judge  of  his  work  in  rela- 
tion thereto.  As  Smith  would  say,  in  the  course 
of  their  reasonings,  although  they  may  realise  the 
truth  of  a  proposition,  yet  it  would  seem  to  slip 
out  of  their  memory. 

Smith  realised  the  imperfections  of  the  mer- 
cantile system,  but  he  was  undoubtedly  conscious 
of  the  fact  that  it  was  not  given  to  any  man  to 
formulate  and  complete,  in  all  of  its  essentials,  a 
new  science;  and  this,  in  our  view,  was  his  reason 
for  limiting  himself  to  establishing  its  funda- 
mentals, and  modern  economic  science  may  be 


24o  NATIONAL  SYSTEM  OF  ECONOMICS 

assumed  to  have  taken  root  from  the  seeds  which 
he  has  sown. 

List  was  undoubtedly  conscious  of  this,  and  it 
was  ungracious  of  him  not  to  concede  a  fuller 
recognition  to  Smith — it  would  not  have  impaired 
the  value  of  his  own  great  work;  but  we  see  in  the 
attitude  he  adopted  towards  Smith  in  this  respect 
a  desire  to  take  to  -himself  more  credit  than  he  was 
legitimately  entitled  to. 

In  the  development  of  his  national  system  of 
political  economy,  List  had  many  advantages 
which  Smith  had  not,  inasmuch  as,  at  the  time  he 
wrote  the  work,  applied  science  had  made  consider- 
able progress;  he  had  the  further  advantage  of  the 
experience  gained  in  the  application  and  develop- 
ment of  Smith's  tested  doctrines;  and  to  the 
numerous  inventions  and  discoveries  that  had 
been  made  since  Smith's  great  work  was  published. 

If  List  was  not  conscious  of  the  exact  system 
that  Smith  intended,  it  is  our  candid  opinion  that 
he  was  subconsciously  influenced  by  his  teachings 
in  developing  his  own  national  system  of  political 
economy.  On  page  ^09,  of  his  work  he  more 
or  less  confirms  this  view — 

"  A  penetrating  mind  like  that  of  Adam  Smith 
could  not  entirely  overlook  the  difference  between 
wealth  and  its  causes;  nor  the  decisive  influence 
of  these  causes  upon  the  condition  of  nations. 
In  his  introduction  he  distinctly  announced  that 


ECONOMIC   SYSTEMS  241 

4  Labour  is  the  fund  which  originally  supplies  a 
nation  with  its  wealth,  and  the  abundance  or 
scantiness  of  the  annual  supply  must  depend  prin- 
cipally upon  the  actual  state  of  the  skill,  dexterity 
and  judgment  with  which  labour  is  applied,  the 
productive  power  of  labour,  and  upon  the  pro- 
portion between  the  number  of  those  who  are  not 
so  employed.'  It  is  easy  to  see  that  Adam  Smith 
perfectly  understood  that  the  welfare  of  nations 
depends  chiefly  on  the  amount  of  their  productive 
power. 

"  But  it  appears  not  to  be  in  the  order  of  nature    <j 
that  a  science  shall  come  forth  complete  from  the 
head  of  any  single  philosopher" 

The  italics  are  ours;  but  in  this  last  sentence 
we  get  an  admission  whicH  is  highly  significant, 
and  with  the  tenor  of  which  we  fully  agree.  But 
how  was  it  possible  for  List  to  reconcile  this  view 
with  the  other  statement  that  Smith  was  an  advo- 
cate of  absolute  free  trade?  Both  statements  are 
clearly  contradictory  in  terms  and  principle. 

In  the  view  we  hold  of  Adam  Smith's  teaching 
we  are  evidently  not  alone.  Francis  Horner,  who 
rose  to  very  high  repute  as  an  economist  in  the 
early  part  of  last  century,  states  that  both  he 
and  Lord  Seymour  *  "  were  under  the  necessity  of 
suspending  progress  in  the  perusal  of  the  Wealth 
of  Nations ,  on  account  of  the  insurmountable 

1  Preliminary  Essay,  by  Stephen  Colwell. 


242  NATIONAL  SYSTEM  OF  ECONOMICS 

difficulties,  obscurities  and  embarrassments  in 
which  the  reasonings  of  Chapter  V.  are  involved  " 
(Memoirs,  vol.  i,  p.  163).  He  and  his  friend  had 
engaged  in  a  regular  and  deliberate  study  of  the 
work  thus  given  up.  He  asks  (ibid.,  p.  126)  if 
"  Smith  did  not  judge  amiss  in  his  premature 
attempt  to  form  a  sort  of  system  upon  the  Wealth 
of  Nations,  instead  of  presenting  his  valuable 
speculations  to  the  world  under  the  form  of 
separate  dissertations?  As  a  system,  his  work  is 
evidently  imperfect,  and  yet  it  has  so  much  the  air 
of  a  system,  that  we  are  apt  to  adopt  his  erroneous 
opinions,  because  they  figure  in  the  same  fabric 
with  approved  and  important  truths."  In  another 
place  he  says,  in  reply  to  a  request  to  edit  the 
Wealth  of  Nations,  "I  should  be  reluctant  to 
expose  Smith's  errors  before  his  work  has  operated 
its  full  effort.  We  owe  much  at  present  to  the 
superstitious  worship  of  Smith's  name;  and  we 
must  not  impair  that  feeling  until  the  victory  is 
more  complete.  There  are  few  practical  errors  in 
the  Wealth  of  Nations,  at  least  of  any  great  conse- 
quence; and  until  we  can  give  a  correct  and  precise 
theory  of  the  nature  and  origin  of  wealth,  his 
popular,  plausible,  and  loose  hypothesis  is  as  good 
for  the  vulgar  as  any  other  "  (ibid.,  229). 

As  will  be  observed  above,  Mr.  Horner  has  a 
suspicion  that  a  system  runs  through  Adam  Smith's 
principles,  but  that  neither  he  nor  Lord  Seymour 


ECONOMIC   SYSTEMS  243 

could  perceive  it.  He  was  "  reluctant  to  expose 
Smith's  errors  before  his  work  had  operated  its  full 
effect."  In  this  decision  he  was  wise,  for  at  such 
an  early  period  it  was  impossible  for  him  to  defi- 
nitely assert,  with  any  degree  of  certainty,  that  any 
of  the  fundamentals  enunciated  by  Smith  were 
wrong  in  principle. 

"  When  Smith  is  read  as  he  merits  to  be," 
writes  J.  B.  Say,  "  it  is  seen  that  before  him  there 
was  no  political  economy."  Yet  for  some  peculiar 
reason  he  proceeds  as  follows :  "  His  work  can 
only  be  considered  as  an  immethodical  assemblage 
of  the  soundest  principles  of  political  economy, 
supported  by  luminous  illustrations  of  highly 
ingenious  researches  in  statistics,  blended  with 
instructive  reflections;  it  is  not,  however,  a  com- 
plete treatise  of  either  science,  but  an  irregular 
mass  of  curious  and  original  speculations,  and  of 
known  demonstrated  truths." 

It  is  difficult  to  conceive,  however,  how  any  one 
can  attribute  to  Smith  "  original  speculations  and 
of  known  demonstrated  truths"  unless  such  prin- 
ciples conformed  to  a  definite  economic  system — 
if  it  was  not  drawn  to  chart,  it  was  at  any  rate 
clearly  perceived  mentally. 

In  glancing  through  the  books  of  a  second-hand 
book-shop  quite  recently  we  came  across  a  tenth 
edition  of  Adam  Smith's  Theory  of  Moral  Senti- 
ments, published  in  1804.  ^n  tn^s  edition  there 


244  NATIONAL  SYSTEM  OF  ECONOMICS 

is  a  very  short  preface  (two  pages),  written  by 
Smith  under  the  title  of  "  Advertisement,"  the 
existence  of  which  can  only  be  known  to  a  very 
limited  circle.  It  certainly  could  not  have  been 
known  to  List,  or  else  he  would  have  been  more 
guarded  in  his  statements. 

The  preface  was  written  by  Smith  after  he  had 
completed  the  Wealth  of  Nations,  and  in  it  he 
confirms  that  his  Theory  of  Moral  Sentiments  and 
the  Wealth  of  Nations  were  intended  by  him  to 
form  part  of  a  general  system  (he  uses  the  words 
"plan"  and  "design"),  to  be  concluded,  should 
his  age  and  health  permit,  with  a  work  on  the 
Theory  of  Jurisprudence. 

It  affords  us  very  great  pleasure  to  be  able  to 
publish  this  preface,  as  it  supports  the  view  we 
have  formed  independently  of  it,  and  which  we 
have  consistently  maintained  throughout  our  study 
of  this  subject.  The  preface  speaks  for  itself  and 
will,  no  doubt,  prove  to  be  of  considerable  public 
interest. 

"Since  the  first  publication  of  the  Theory  of 
Moral  Sentiments,  which  was  so  long  ago  as  the 
beginning  of  the  year  1759,  several  corrections, 
and  a  good  many  illustrations  of  the  doctrines 
contained  in  it,  have  occurred  to  me.  But  the 
various  occupations  in  which  the  different  accidents 
of  my  life  necessarily  involved  me,  have  till  now 
prevented  me  from  revising  this  work  with  the 


ECONOMIC   SYSTEMS  245 

care  and  attention  which  I  always  intended.  The 
reader  will  find  the  principal  alterations  which  I 
have  made  in  this  New  Edition,  in  the  last  chapter 
of  the  third  Section  of  Part  First;  and  in  the  four 
first  chapters  of  Part  Third.  Part  Sixth,  as  it 
stands  in  this  New  Edition,  is  altogether  new.  In 
Part  Seventh,  I  have  brought  together  the  greater 
part  of  the  different  passages  concerning  the 
Stoical  Philosophy,  which,  in  the  former  Editions, 
had  been  scattered  aBout  in  different  parts  of  the 
work.  I  have  likewise  endeavoured  to  explain 
more  fully,  and  examine  more  distinctly,  some  of 
the  doctrines  of  that  famous  sect.  In  the  fourth 
and  last  Section  of  the  same  Part,  I  have  thrown 
together  a  few  additional  observations  concerning 
the  duty  and  principle  of  veracity.  There  are, 
besides,  in  other  parts  of  the  work,  a  few  other 
alterations  and  corrections  of  no  great  moment. 

"  In  the  last  paragraph  of  the  First  Edition  of 
the  present  work,  I  said  that  I  should  in  another 
discourse  endeavour  to  give  an  account  of  the 
general  principles  of  law  and  government,  and  of 
the  different  revolutions  which  they  had  under- 
gone in  the  different  ages  and  periods  of  society; 
not  only  in  what  concerns  justice,  but  in  what 
concerns  police,  revenue,  and  arms,  and  whatever 
else  is  the  object  of  law.  In  the  Enquiry  concern- 
ing the  Nature  and  Causes  of  the  Wealth  of 
Nations,  I  have  partly  executed  this  promise;  at 
least  so  far  as  concerns  police,  revenue,  and  arms. 
What  remains,  the  theory  of  jurisprudence,  which 
I  have  long  projected,  I  have  hitherto  been  hin- 


246  NATIONAL  SYSTEM  OF  ECONOMICS 

dered  from  executing,  by  the  same  occupations 
which  had  till  now  prevented  me  from  revising  the 
present  work.  Though  my  very  advanced  age 
leaves  me,  I  acknowledge,  very  little  expectation 
of  ever  being  able  to  execute  this  great  work  to 
my  own  satisfaction;  yet,  as  I  have  not  altogether 
abandoned  the  design,  and  as  I  wish  still  to  con- 
tinue under  the  obligation  of  doing  what  I  can,  I 
have  allowed  the  paragraph  to  remain  as  it  was 
published  more  than  thirty  years  ago,  when  I 
entertained  no  doubt  of  being  able  to  execute 
everything  which  it  announced." 

The  difference  between  the  system  advocated  by 
List  and  the  one  we  have  endeavoured  to  enunciate 
herein,  is  that  in  our  system,  i.  e.  national  eco- 
nomics based  on  freedom  of  trade,  with  a  limit 
on  tariff  duties  of  twenty  per  cent,  ad  valorem,  we 
have  more  clearly  defined  it  as  a  science.  Our 
system  presupposes  the  existence  of  other  sciences 
and  embodies  them  for  purposes  of  co-ordination, 
such  as  those  of  education,  chemistry,  production 
(manufacture  and  agriculture),  transportation, 
and  banking,  and  that  all  Government  policy 
should  be  based  upon  it. 

In  the  system  we  advocate  we  seek  to  apply  the 
principles  of  national  economics  through  phases 
or  spheres  of  activity,  our  view  of  the  science 
being  that  the  productive  power  of  all  phases  and 
spheres  of  activity  ought  to  be  developed  simul- 


ECONOMIC   SYSTEMS  247 

taneously  and  to  the  utmost  possible  extent,  acting 
on  the  principle  that  the  strength  of  a  chain  is 
determined  by  its  weakest  link. 

To  make  the  matter  more  readily  understand- 
able, it  is  well  known  that  the  speed  of  a  fleet  of 
battleships  is  determined  by  the  speed  of  its  slowest 
battleship,  and,  therefore,  the  only  means  by  which 
the  collective  speed  of  the  fleet  can  be  increased 
is  to  eliminate  the  least  efficient  battleship,  or 
battleships,  and  substitute  for  them  ships  of  a 
superior  class.  The  strength  or  productive  power 
of  the  nation,  therefore,  for  defensive  and  offensive 
purposes,  either  in  the  arts  of  peace  or  in  war,  is 
influenced  very  largely  by  these  same  principles. 

Experience  has  taught  us  that  the  power  and 
prestige  of  a  nation  does  not  lie  only  upon  its 
military  and  naval  forces.  The  capacity  to  pro- 
duce efficiently  is  at  least  as  important  as  the  other 
two.  Industry  has  not  only  to  bear  the  cost  of 
sustaining  our  naval  and  military  forces  out  of 
profits,  but  it  has  also  to  deliver  sufficient  muni- 
tions for  destructive  purposes,  and  the  amount 
required  is  regulated  entirely  by  the  productive 
capacity  of  other  competitive  nations.  And  this 
doctrine  will  survive  until  all  nations  agree  to  live 
peaceably  with  one  another,  and  to  remove  all 
restrictions  to  general  freedom  of  trade.1 

1   On  the  Relation  of  Imports  to  Exports  (].  Taylor  Peddle). 


248  NATIONAL  SYSTEM  OF  ECONOMICS 

If  the  science  of  national  economics  based  upon 
freedom  of  trade  is  to  be  operated  as  a  branch 
of  the  science  of  Government  it  is  necessary  that 
it  shall  mainly  concern  itself  with  the  productive 
power  of  the  existing  sciences,  i.  e.  phases  or 
spheres  of  activity,  and  this  is  the  essential  aspect 
of  the  question  which  seems  to  have  been  over- 
looked by  previous  economic  writers. 

As  we  have  more  than  once  indicated,  no  indi- 
vidual producer  can  live  unto  himself,  and  similarly 
it  follows  that  no  phase  of  industrial  activity, 
whether  it  be  in  industry  or  agriculture,  can  exist 
by  itself;  it  must  have  regard  to  the  other  phases 
of  activity  which  surround  and  are  dependent  upon 
it.  The  greatest  and  most  modern  force  in  wealth- 
production  is  organisation,  but,  notwithstanding 
this,  it  should  not  be  assumed  that  individuality 
is  lost  in  organisation;  on  the  contrary,  it  is  a 
greater  factor  than  ever,  and  the  more  that  indi- 
viduality is  developed  in  an  organisation  the 
stronger  does  it  become  in  productive  power.  It 
is,  however,  essential  that  the  individuals  com- 
posing an  organisation,  a  group,  or  a  sub-group, 
should  work  cohesively  and  intelligently,  for  one 
purpose. 

As  with  individuals,  with  organisations,  or 
spheres  of  activity,  so  it  is  with  the  sciences  to 
which  we  have  referred,  and  will  refer  to  further 
hereafter.  They  cannot  live  unto  themselves : 


ECONOMIC  SYSTEMS  249 

they  are  surrounded  and  are  dependent  upon  other 
individuals,  organisations  and  spheres  of  activity.1 
In  these  views  we  are  supported  by  the  maxims 
of  Frederick  List,  who  in  the  introduction  to  his 
work,  On  a  National  System  of  Political  Economy, 
writes  as  follows — 

"  The  association  of  individuals  for  the  prosecu- 
tion of  a  common  end  is  the  most  efficacious  mode 
towards  ensuring  the  happiness  of  individuals. 
Alone,  and  separated  from  his  fellow-creatures, 
man  is  feeble  and  destitute.  The  greater  the 
number  of  those  who  are  united,  the  more  perfecj] 
is  the  association,  and  the  greater  and  the  more 
perfect  is  the  result,  which  is  the  moral  and  material 
welfare  of  individuals. 

"  The  highest  association  of  individuals  now 
realised  is  that  of  the  state,  the  nation;  and  the 
highest  imaginable  is  that  of  the  whole  human  race. 
Just  as  the  individual  is  happier  in  the  bosom  of 
the  state  than  in  solitude,  all  nations  would  be 
more  prosperous  if  they  were  united  together  by 
law,  by  perpetual  peace,  and  by  free  interchange. 

"  Nature  leads  nations  gradually  to  the  highest 
degree  of  association;  inviting  them  to  commerce 
by  variety  of  climate,  soil  and  productions;  and 
by  overflowing  population,  by  superabundance  of 
capital  and  talents,  it  leads  them  to  emigration 
and  the  founding  of  distant  colonies.  Inter- 
national trade,  by  rousing  activity  and  energy, 

1  Continued  on  p.  263  under  definition  of  National 
Economics. 


250  NATIONAL  SYSTEM  OF  ECONOMICS 

by  the  new  wants  it  creates,  by  the  propagation 
among  nations  of  new  ideas  and  discoveries,  and 
by  the  diffusion  of  power,  is  one  of  the  most 
powerful  agencies  in  promoting  national  prosperity. 

uAs  human  association  ought  to  be  considered 
under  two  points  of  view  (that  is  to  say,  the  cosmo- 
politan, embracing  all  the  human  race,  and  the 
political,  or  merely  national),  every  economy, 
private  or  public,  ought  to  be  considered  under 
two  different  aspects :  the  individual,  social  and 
material  power,  by  means  of  which  riches  are 
produced,  and  the  interchangeable  value  of  the 
products  of  industry. 

"There  is,  consequently,  a  cosmopolitan  eco- 
nomy and  a  political  economy,  a  theory  of  inter- 
changeable value  and  a  theory  of  productive 
power.  These  doctrines  are  distinct  in  their 
essence  and  require  to  be  developed  separately. 

"  The  productive  power  of  nations  is  not  solely 
dependent  on  the  labour,  the  savings,  the  morality 
and  the  intelligence  of  individuals,  or  on  the  pos- 
session of  natural  advantage  and  material  capital; 
it  is  dependent  also  upon  institutions  and  laws, 
social,  political,  and  civil,  but,  above  all,  on  the 
securities  of  their  duration,  their  independence, 
and  their  power  as  nations.  Individuals  would 
be  in  vain  laborious,  economical,  ingenious,  enter- 
prising, intelligent,  and  moral,  without  a  national 
unity,  without  a  division  of  labour,  and  a  co- 
operation of  productive  power.  A  nation  cannot 
otherwise  attain  to  a  high  degree  of  prosperity  and 
power,  nor  maintain  itself  in  the  permanent  posses- 
sion of  its  intellectual,  social,  and  material  riches. 


ECONOMIC   SYSTEMS  251 

"  The  principle  of  the  division  of  labour  has 
been  hitherto  but  imperfectly  understood.  Indus- 
trial production  depends  much  less  on  the  appor- 
tioning of  the  various  operations  of  a  manufacture 
among  several  individuals  than  on  the  moral  and 
material  association  of  those  individuals  for  a 
common  end. 

"  This  principle  applies  not  only  to  a  manu- 
facturer or  to  a  rural  industry;  it  extends,  also,  to 
every  kind  of  national  industry,  agricultural, 
manufacturing,  and  commercial. 

"The  division  of  labour  and  the  combination 
of  productive  power  take  place  in  a  nation  when 
the  intellectual  power  is  applied  so  as  to  co-operate 
freely  and  efficiently  with  national  production, 
when  manufacturing  industry  and  trade  are  equally 
and  harmoniously  developed." 


ON  THE  NATURE  OF  POLITICAL  ECONOMY 

Economic  writers  have  for  the  most  part  con- 
cerned themselves  with  defining  terms  more  than 
facts.  As  Archbishop  Whateley,  in  the  appendix 
to  his  work  on  Logic,  has  stated,  "  the  terms  of 
this  science  are  drawn  from  common  discourse  and 
seldom  carefully  defined  by  the  writers  who  employ 
them;  hardly  one  of  them  has  any  settled  or  in- 
variable meaning,  and  their  ambiguities  are  per- 


252  NATIONAL  SYSTEM  OF  ECONOMICS 

petually  overlooked."  The  words  to  which  he 
refers  are  value,  wealth,  labour,  capital,  rent, 
wages,  and  profits.  Under  each  of  these  words 
he  places  the  definitions  of  various  writers,  differ- 
ing so  widely  that  it  seems  strange  a  science  could 
hold  together  cemented  by  such  phraseology.  The 
Authors  to  whom  he  makes  reference  are  Adam 
Smith,  J.  B.  Say,  Ricardo,  Malthus,  Storch, 
Sismondi,  Mill,  Torrens,  and  McCulloch.1 

To  Whateley's  list  we  would  add  three  others 
which  have  come  under  our  own  observation,  and 
which  are  discussed  in  the  volumes  we  have  now 
completed :  namely,  Raw  Materials,  Free  Trade, 
and  Political  Economy.  The  whole  three  are 
misnomers.  The  correct  descriptive  terms,  as 
may  have  been  gathered  from  our  discussion,  are 
"  Natural  Materials,"  "  Freedom  of  Trade,"  and 
"  National  Economics."  As  we  have  already 
defined  the  terms  "  Raw  Materials  "  and  "  Free 
Trade,"  we  will  now  define  the  term  "  Political 
Economy,"  for  we  believe  that  until  we  obtain 
precise  descriptive  terms  economic  science  will 
continue  to  remain  a  confused  study  instead  of 
being,  what  it  ought  to  be,  and  can  be,  a  precise 
and  definite  science. 

1  Stephen  Colwell,  in  the  Preliminary  Essay  published  in 
the  American  translation  of  the  work  by  Frederick  List,  and 
we  desire  to  make  due  acknowledgment  to  him  for  the  more 
complete  study  of  the  subject  which  we  now  make. 


ECONOMIC  SYSTEMS  253 

Thomas  de  Quincy,  in  his  work  on  The  Logic 
of  Political  Economy,  which  was  written  expressly 
to  correct  some  errors  in  the  logic  and  terminology 
of  the  science,  stated  that  in  his  estimation — 

"  Political  economy  does  not  advance.  Since 
the  revolution  effected  in  that  science  by  Ricardo 
(1817),  upon  the  whole  it  has  been  stationary. 
But  why  ?  It  has  always  been  my  own  conviction 
that  the  reason  lies  in  the  laxity  of  some,  amongst 
the  distinctions  which  are  elementary  to  the 
science.  For  example,  that  one  desperate  enor- 
mity of  vicious  logic  which  takes  place  in  the 
ordinary  application  to  price  of  the  relation  be- 
tween supply  and  demand,  has  ruined  more  argu- 
ments dispersed  through  speeches,  books,  journals, 
than  a  long  life  could  fully  expose.  Let  us  judge 
by  analogy  drawn  from  mathematics.  If  it  were 
possible  that  but  three  elementary  definitions,  or 
axioms,  or  postulates,  should  be  liable  to  contro- 
versy and  to  a  precarious  use  (a  use  dependent 
upon  petition,  momentary  consent),  what  would 
follow?  Simply  this,  that  the  whole  vast  aerial 
synthesis  of  that  science,  at  present  towering 
upwards  towards  infinity,  would  exhibit  an  edifice 
eternally,  perhaps,  renewing  itself  by  parts,  but 
eternally  tottering  in  some  parts,  and  in  other  parts 
mouldering  eternally  into  ruins.  Such,  even  to 
this  moment,  as  to  its  practical  applications,  is  the 
science  of  political  economy.  Nothing  can  be 
postulated;  nothing  can  be  demonstrated." 

John   Stuart   Mill   has  also  an  observation   to 


254  NATIONAL  SYSTEM  OF  ECONOMICS 

make  on  this  subject,  and  in  his  Essays  on  some 
Unsettled  Questions  of  Political  Economy,  which 
appeared  in  1844,  excuses  the  want  of  good  defini- 
tions by  saying  that  many  of  the  acknowledged 
sciences  are  deficient  in  this  respect,  and  that  good 
definitions  are  the  last  thing  to  be  looked  for  in 
the  march  of  a  science,  "first  principles  being,  in 
fact,  last  principles." 

To  one  who  was  supposed  to  be  skilled  in  logic 
and  precise  in  language,  this  excuse  by  Mill  is 
most  astonishing.  Had  he  taken  more  trouble 
to  supply  us  with  the  essential  definitions  he  might 
not  have  been  led  to  develop  the  theory  of  Laissez 
faire,  Laissez  passer  to  the  extent  he  has. 

He  gives  the  rationale  of  the  distinction  between 
Physical  and  Moral  Science  as  follows — 

"  Everything,"  he  says,  "  which  can  possibly 
happen  in  which  man  and  external  things  are 
jointly  concerned,  results  from  the  joint  operation 
of  a  law  or  laws  of  the  human  mind.  Thus  the 
production  of  corn  by  human  labour  is  the  result 
of  a  law  of  mind  and  many  laws  of  matter.  The 
laws  of  the  production  of  the  objects  which  con- 
stitute wealth  are  the  subject  matter  both  of 
political  economy  and  of  almost  all  the  physical 
sciences;  such  as  are  purely  laws  of  matter  belong 
to  physical  science  exclusively.  Such  of  them  as 
are  laws  of  the  human  mind,  and  no  others,  belong 
to  political  economy,  which  finally  sums  up  the 


ECONOMIC  SYSTEMS  255 

result  of  both  combined.  Political  economy  pre- 
supposes all  the  physical  sciences;  it  takes  for 
granted  all  such  of  the  truths  of  those  sciences  as 
are  concerned  in  production.  It  then  inquires 
what  are  the  phenomena  of  mind  concerned  in  pro- 
duction and  distribution;  it  borrows  from  the  pure 
science  of  mind  the  laws  of  those  phenomena,  and 
inquires  what  effects  follow  from  these  mental 
laws,  acting  in  concurrence  with  those  physical 
ones." 

Upon  these  considerations  he  furnishes  the 
following  definition  of  political  economy — 

"The  science  which  treats  of  the  production 
and  distribution  of  wealth  so  far  as  they  depend 
upon  laws  of  human  nature.  Or  thus :  The 
science  relating  to  the  moral  or  psychological  laws 
of  the  production  and  distribution  of  wealth." 

The  essay  continues  to  illustrate  the  relations 
of  mental  science  with  political  economy,  and  then 
proceeds — 

"  Pure  mental  philosophy,  therefore,  is  an 
essential  part  or  preliminary  of  political  philo- 
sophy. The  science  of  social  economy  embraces 
every  part  of  man's  nature  in  so  far  as  influencing 
the  conduct  or  condition  of  man  in  society.  It 
does  not  treat  of  the  whole  of  man's  nature  as 
modified  by  the  social  state,  nor  of  the  whole 
conduct  of  man  in  society.  It  is  concerned  with 
him  solely  as  a  being  who  desires  to  possess  wealth, 


256  NATIONAL  SYSTEM  OF  ECONOMICS 

and  who  is  capable  of  judging  of  the  comparative 
efficacy  of  means  for  obtaining  that  end." 

After  remarking  at  some  length  on  the  mixed 
motives  which  govern  men  in  the  affairs  of  life, 
he  says — 

"  But  there  are  also  certain  departments  of 
human  affairs  in  which  the  acquisition  of  wealth 
is  the  main  and  acknowledged  end.  It  is  only  of 
these  that  political  economy  takes  notice.  The 
manner  in  which  it  necessarily  proceeds  is  that  of 
treating  the  main  and  acknowledged  end  as  if  it 
were  the  sole  end."  The  author  then  arrives  at 
another  definition,  which,  in  his  view,  "  seems  to 
be  complete " :  "  The  science  which  traces  the 
laws  of  such  of  the  phenomena  of  society  as  arise 
from  the  combined  operations  of  mankind  for  the 
production  of  wealth,  in  so  far  as  those  phenomena 
are  not  modified  by  the  pursuit  of  any  other 
object."  * 

In  reading  this  highly  elaborate  definition  by 
J.  S.  Mill  we  begin  to  see  where  all  our  economic 
troubles  have  begun.  He  asserts  that  "  pure 
mental  philosophy  is  an  essential  part  or  pre- 
liminary to  political  economy;"  and  that  "  there 
are  also  certain  departments  of  human  affairs  in 
which  the  acquisition  of  wealth  is  the  main  and 
acknowledged  end."  Poor  Mill!  it  is  the  preach- 
ing of  such  a  doctrine  as  this  which  causes  many 
1  From  Stephen  Colwell. 


ECONOMIC   SYSTEMS  257 

people  to  agree  with  Matilde  that  political  eco- 
nomy is  a  science  which  has  "  by  its  pompous, 
scientific  phraseology,  its  contradictions,  and  its 
vicious  terminology,  defied  comprehension  and 
resisted  common  sense."  And  we  can  now  quite 
imagine  the  deep-rooted  prejudice  which  organ- 
ised labour  has  had  towards  the  science  known  as 
political  economy,  and  which  has  forced  them, 
out  of  sheer  desperation,  to  turn  to  Karl  Marx 
for  a  measure  of  consolation. 

As  Stephen  Colwell  very  wisely  writes — 

"  We  cannot  but  think  that  the  author  of  these 
two  definitions  realised,  in  the  progress  of  his 
essay,  that  the  science  of  political  economy,  as 
received  by  himself  and  by  many  of  the  school 
of  Adam  Smith,  and  by  J.  B.  Say,  could  not  logi- 
cally or  consistently  include  any  considerations  of 
morality,  humanity,  or  religion." 

We  can  now  see  that  according  to  Mill,  who  is 
no  doubt  one  of  their  best  exponents,  the  school  of 
Laissez  faire,  Laissez  passer  consider  that  political 
economy  may  be  "  characterised  as  essentially  an 
abstract  science  and  its  method  as  the  a  priori." 
"  It  reasons,  and,  as  we  contend,  must  necessarily 
reason  from  assumptions,  not  from  facts."  "  That 
which  is  true  in  the  abstract  is  always  true  in  the 
concrete,  with  proper  allowances." 

In   the  last   few   words  just   quoted   is  to   be 


258  NATIONAL  SYSTEM  OF  ECONOMICS 

found  the  empirical  method  of  reasoning  which 
underlies  the  principles  of  the  Laissez  falre  school. 
Who  are  to  be  the  arbiters  and  the  judges  of  the 
correct  and  proper  allowances  that  are  to  be  made 
in  the  conversion  of  an  abstract  proposition  into 
the  concrete  ?  And  are  we  to  believe  that  the  same 
judgment  and  discretion  would  be  brought  to  bear 
in  the  consideration  of  economic  problems  that 
arise  for  consideration  in  the  course  of  time  ? 

Human  nature  being  as  it  is,  it  will  be  difficult 
to  expect  the  average  citizen  to  place  much 
reliance  upon  such  a  system,  and  have  we  not  had 
experience  of  it  already  in  the  case  of  organised 
labour?  This  group  is  not  prepared  to  believe 
that  abstract  theories  are  always  true  in  the  con- 
crete, with  proper  allowances.  Such  concessions 
as  they  have  demanded  in  the  past  have  had  little 
or  no  relation  to  the  abstract,  but  have  always  been 
sufficiently  concrete  and  carried  definite  guarantees 
as  to  their  realisation.  The  words  "  with  proper 
allowances  "  may  be  described  as  a  correct  defini- 
tion of  empiricism  at  its  best,  and  empiricism  and 
Laissez  falre  are  synonymous. 

Political  economy  is  not,  then,  according  to 
Mill,  a  mere  collection  of  laws  by  which  men  are 
to  be  governed  in  the  affairs  of  life,  but  a  col- 
lection of  the  truths  or  laws  of  abstract  science 
intended  for  the  information  of  practical  men. 
The  scientific  political  economist  "  stands  in  the 


ECONOMIC   SYSTEMS  259 

same  relation  to  the  legislator  as  the  mere  geo- 
grapher stands  to  the  navigator,  telling  him  the 
latitude  and  longitude  of  all  sorts  of  places,  but 
not  how  to  find  whereabout  he  himself  is  sailing," 
and,  we  may  add,  not  pointing  out  where  he  is  to 
sail  nor  the  rocks  and  dangers  in  his  track.  He 
recommends  to  the  mere  economist  "  extreme 
modesty  "  in  his  opinions  on  practical  politics,  and 
in  the  practical  applications  of  his  doctrines  to 
existing  circumstances.1 

It  is  the  system  of  political  economy  which  has 
brought  us  very  near  to  losing  the  war  with  Ger- 
many. It  represents  a  policy  which  is  inconsistent 
with  nationality,  and  it  cannot  in  future  be  accept- 
able as  the  basis  of  our  national  business  policy. 
Mill  and  other  nineteenth-century  economists 
endeavoured  to  persuade  us  to  believe  that  eco- 
nomic science  is  a  mental  philosophical  study 
instead  of  being  a  physical  one.  As  a  matter  of 
actual  fact  it  is  neither  mental  nor  physical,  but 
in  its  elementary  form  it  is  a  combination  of  the 
physical  and  the  mental,  the  reason  being  that 
material  welfare  must  always  precede  any  form  of 
mental  culture.  It  would  not  be  natural  to  expect, 
and  it  would  be  difficult  to  believe,  that  any  human 
being  could  exhibit  a  disposition  to  listen  to  a 
dissertation  on  the  theory  of  moral  sentiment  if 
he  possessed  an  empty  stomach.  Would  he  not 
1  Preliminary  Essay  by  Stephen  Colwell,  p.  xxii. 


260  NATIONAL  SYSTEM  OF  ECONOMICS 

rather  be  more  disposed  to  entertain  proposals 
which  would  provide  him  with  the  necessary  means 
of  subsistence  and  material  welfare  ?  And  if  such 
proposals  were  even  then  not  effective,  we  are 
inclined  to  think  he  would  be  prepared  to  covet 
or  exhibit  an  inclination  to  deprive  other  people  of 
their  legitimate  property  in  order  that  his  natural 
wants  might  be  satisfied. 

In  many  respects  we  consider  the  style  and  the 
logic  of  Stephen  Colwell,  in  his  notes  to  the  trans- 
lation of  the  work  of  Frederick  List  on  a  National 
System  of  Political  Economy,  to  be  much  superior 
to  the  main  context  of  the  work.  Colwell  is  most 
eloquent  in  the  following  passage,  and  the  school 
to  which  he  refers  is  the  Laissez  faire  school,  or 
the  free  trade  doctrinaires — 

"  The  process  of  disintegration  has  commenced, 
and  will  not  cease  until  the  school,  its  popularity 
and  opinions,  shall  belong  to  the  history  of  the 
past.  In  the  first  announcement  of  this  system, 
nothing  was  more  insisted  upon  than  the  non- 
intervention of  government  and  individual  liberty. 
These  were  necessary  to  give  the  new  science  fair 
play.  The  subject  of  the  science  was  the  produc- 
tion, distribution,  and  consumption  of  wealth. 
The  science  could  assume  that  the  natural  wants 
of  men  would  compel  them  to  labour;  that  this 
labour  would  produce  wealth;  that  this  wealth 
must  be  distributed;  that  the  distribution  would 
be  effected  by  free  trade,  according  to  the  industry 


ECONOMIC   SYSTEMS  261 

and  wants  of  all  people,  under  the  operation  of 
supply  and  demand,  and  the  theory  of  markets. 
The  science  depended  upon  the  habits  and  in- 
stincts of  man,  a  producing  and  exchanging 
animal,  to  make  its  theory  good.  But  that  these 
habits  and  instincts  should  operate  fairly,  and 
justify  the  doctrine,  they  must  be  let  alone  to 
exhibit  their  doings  in  the  natural  order  of  things. 
The  nation  must  not  interpose  any  policy  of  its 
own,  nor  enforce  any  restriction  or  regulation;  it 
must  not  attempt  to  relieve  or  furnish  employment 
to  those  who  suffer  for  want  of  work;  all  indi- 
viduals must  be  free  within  the  entire  scope  of 
practical  political  economy.  Any  intervention  on 
the  part  of  government  would  be  a  disturbance  of 
the  natural  order  or  course  of  things.  The  science 
had  assumed  what  individuals,  under  the  pressure 
of  their  natural  and  factitious  wants,  would  do; 
but  how  could  the  science  anticipate  what  the 
movements  of  a  despot  or  the  action  of  a  govern- 
ment might  be?  These  sources  of  action  had 
neither  natural  instincts  nor  settled  habits  upon 
which  to  found  the  laws  of  a  science.  If  the 
science  should  permit  itself  to  be  drawn  into  the 
regions  of  mere  common  sense,  of  sound  discre- 
tion, of  administrative  skill  or  cunning,  or  despotic 
or  legislative  caprice,  it  must  necessarily  expire. 
The  business  of  governing,  in  reference  to  the 
interests  of  industry  and  trade,  had  hitherto  been 
carried  on  mainly  without  any  aid  from  political 
economy,  under  some  of  the  influences  just  men- 
tioned, and  are  far  too  various  and  capricious  to 


262  NATIONAL  SYSTEM  OF  ECONOMICS 

be  reducible  into  the  formula  of  a  science.     And 
yet  the  great  lights  of  the  science  above  named 
have,  by  the  concessions  just  referred  to,  deserted 
the  great  arena   of   the   science,   the  free  acting 
habits  and  instincts  of  all  the  individuals  of  the 
world,  and  have  permitted  themselves  to  be  drawn 
into  the  region  of  national  policy,  sound  discretion, 
common    sense,    legislative    caprice,    or    despotic 
authority.     So  far  as  these  operate,  the  science  is 
gone;  for  it  is  no  science  of  national  policy.     It  is 
clear  to  our  apprehension  that  the  lights  of  the 
science  above  named  have  opened  a  door  which 
will  admit   enemies   the   school  can   never  again 
thrust   out  or   overcome.      There   are  yet  many 
devotees  of  the  science  who  maintain  an  uncom- 
promising hostility  to  all  such  fatal  concessions. 
In  the  number  for  August   1855  of  the  Journal 
des  Economistes,  which  is  the  great  organ  of  the 
disciples  of  Say,  an  article  on  this  subject  com- 
mences thus :  *  The  individual  is  the  substance  of 
society,  and  society  has  no  other  obligation,  as  it 
has  no  other  object,  than  the  security  of  the  indi- 
vidual; it  owes  to  no  one  anything  but  liberty.     It 
can  assure  justice  to  all;  it  can  offer  nothing  but 
justice  to  any  one.     Every  system  which  pretends 
to  give  more  than  liberty,  attacks  liberty.     Every 
measure  which  passes  the  defence  of  individual 
rights,  overlooks  the  rights  of  individuals.'    These 
principles  condemn,  in  the  name  of  morals,  and  in 
the   name    of   utility,    every   intervention    in  the 
movement   of    individual  activity.      This   is   the 
very  spirit  and  the  true  ground  of  the  science. 


ECONOMIC   SYSTEMS  263 

If  this  be  given  up,  where  is  the  stopping-place? 
If  Government  be  allowed  to  intervene  at  ally  it 
must  be  upon  the  ground  of  public  or  private 
good, and  these  exceptions  cover  the  whole  ground 
of  industry  and  trade.  When  Government  becomes 
the  judge  of  what  is  to  be  done  for  the  interests  of 
the  men  who  labour  and  the  men  who  trade,  the 
science  of  the  school  will  be  at  an  end"  * 

The  italics  are  ours;  but  has  the  experience 
gained  from  the  nation  being  in  a  state  of  war 
not  justified  the  fundamental  principles  so  ably 
enunciated  by  Colwell,  even  though  they  were 
written  as  long  ago  as  1856? 


DEFINITION    OF    NATIONAL    ECONOMICS 

The  function  of  a  Government  is  to  advance,  by 
wise  laws  and  regulations,  the  general  welfare  of 
the  community,  and  it  is  elected  for  that  purpose. 
As  the  administration  is  therefore  obliged  to  legis- 
late in  the  national  interests,  would  it  not  be  more 
correct  to  describe  that  branch  of  the  science  of 
government  by  the  name  of  National  Economics, 
rather  than  political  economy?  Every  phase  of 
human  activity,  and  the  sciences,  has  progressed 
by  evolutionary  processes,  sometimes  by  revolu- 

1  List's  National  System  of  Political  Economy,  pp.  257,  258. 


264  NATIONAL  SYSTEM  OF  ECONOMICS 

tionary,  and  are  we  to  assume  that  economic 
science  is  to  be  an  exception  to  the  rule  ?  In  view 
of  the  great  advance  which  has  been  effected  in 
the  sciences  of  education,  chemistry,  production, 
transportation,  and  banking,  should  we  be  correct 
in  assuming  it?  We  think  not. 

The  term  political  economy  is  an  empty  phrase; 
it  signifies  nothing  in  modern  practice;  it  has  out- 
lived its  usefulness  unless  it  be  retained  for  the 
purpose  of  defining  the  science  of  Laissez  faire> 
Laissez  passer,  as  enunciated  by  John  Stuart  Mill, 
and  the  Cobdenite  school. 

On  the  other  hand,  National  Economics  is  a 
science  which  constitutes  the  basis  of  nationality 
and  is  designed  to  control  all  the  laws  and  regula- 
tions relating  to  education,  chemistry,  produc- 
tion, transportation,  and  banking,  out  of  which 
wealth  is  created;  it  seeks  to  make  all  dead  values 
remunerative. 

It  forms  at  all  times  and  in  all  conditions  of 
human  advancement  a  most  important  branch  of 
the  science  of  government  either  for  offensive  or 
defensive  purposes  in  the  arts  of  peace  or  war. 
National  Economics  presupposes  the  existence  of 
other  sciences,  such  as  education,  chemistry,  pro- 
duction, transportation  and  banking,  which  are 
embodied  within  it,  with  a  view  to  co-ordination 
for  the  advancement  of  national  welfare.  All 
laws  and  regulations  which  may  be  formulated 


ECONOMIC   SYSTEMS  265 

by  the  Government  relating  to  production,  dis- 
tribution and  efficiency,  should  be  operated 
through  them,  or  be  mainly  concerned  with  them. 

This  formula  will  be  found  to  be  sound  in 
theory  as  well  as  in  practice,  inasmuch  as  there  are 
departments  of  the  administration  of  the  Govern- 
ment already  in  existence  which  are  mainly  con- 
cerned with  the  sciences  to  which  we  refer,  and  if 
the  principles  we  enunciate  be  accepted  by  the 
Government,  the  science  of  National  Economics 
then  becomes  an  established  fact. 

Our  present  Government  policy  seems  to  be  to 
legislate  in  any  direction  whatsoever  whenever 
necessity  or  public  opinion  deems  it  to  be  ex- 
pedient. The  administration  has  no  definite  line 
of  economic  policy  to  which  it  is  prepared  to 
conform  its  legislation;  the  result  being  that  we 
have  a  mass  of  legislation  which  is  not  articulate; 
certain  parts  of  it  are  diametrically  opposed  in 
principle  to  other  parts,  with  results,  of  course, 
prejudicial  to  the  whole. 

There  is  a  vast  amount  of  work  to  be  done  by 
the  administration  which  is  prepared  to  adopt 
National  Economics  as  the  basis  of  its  national 
business  policy  in  eliminating  all  laws  and 
regulations  which  are  prejudicial  to  the  develop- 
ment of  the  principles  of  nationality;  and  in 
making  those  that  remain,  workable,  and  effective, 
in  a  national  policy. 


266  NATIONAL  SYSTEM  OF  ECONOMICS 

It  would,  therefore,  follow  as  a  corollary  of  this, 
that  all  legislation  which  may  be  subsequently 
effected  should  be  framed  in  a  manner  consistent 
with  the  principles  or  policy  constituting  the  basis 
of  the  new  economics,  and  not  against  them. 

The  policy  which  we  are  now  enunciating  is  not 
founded  on  theory  but  on  actual  experience,  from 
observations  made,  and  from  history.  The  main 
achievement,  or  characteristic,  of  the  scheme,  as  in 
that  of  Frederick  List,  or  in  Adam  Smith's,  may 
be  summed  up  in  the  one  word  "  nationality." 

As  we  have  mentioned  in  the  Preface  to  this 
work,  we  must  first  of  all  organise  all  phases  of 
national  activity  on  purely  national  lines,  subse- 
quently on  Imperial  lines,  and  ultimately  on  Inter- 
national lines.  But  if  the  economic  edifice  which 
we  may  seek  to  erect  is  to  have  any  foundation  it 
should  be  built  up  upon  a  well-defined  economic 
system.  As  the  business  man  would  say,  be 
careful  of  the  foundation  and  the  rest  will  follow; 
at  any  rate,  it  is  certain  that  whatever  edifice  we 
may  seek  to  erect  cannot  be  founded  upon  em- 
piricism or  empirical  methods,  of  which  Laissez 
faire,  Laissez  passer  are  the  symbols. 

To  suggest  that  the  State  should  use  its  national 
power  for  the  proper  regulation  of  its  industry  and 
commerce,  either  through  laws  affecting  transport- 
ation, education,  science,  banking,  tariffs,  or  the 
creation  of  an  efficient  consular  service  (all  of 


ECONOMIC   SYSTEMS  267 

which,  if  undertaken  upon  an  adequate  scale,  will 
cost  money,  but  efficiency  cannot  be  obtained  with- 
out), is  not  to  suggest  that  the  State  should  inter- 
fere with  the  actual  conduct  of  business  or  with 
individual  liberty;  far  from  it.  Both  objects  can 
be  achieved  without  coming  into  conflict,  and  we 
see  a  notable  instance  of  this  in  the  case  of 
America.  All  that  the  State  should  do  is  to  ensure 
that  its  industry  and  commerce  are  conducted  in 
conditions  equally  efficient  as  those  prevailing  in 
other  countries,  as  the  State  only  has  the  necessary 
power  to  correct  inequalities. 

It  must  be  obvious,  particularly  in  view  of  the 
experience  which  we  have  derived  from  the  present 
war,  that  national  power  does  not  solely  lie  with 
the  strength  of  our  Army  and  Navy,  but  also  with 
the  strength  of  our  educational,  productive,  trans- 
portation, and  financial  resources.  And,  ipso  facto, 
the  prestige  of  our  nation,  and  through  it  our 
Empire,  is  measured  entirely  in  the  eyes  of  the 
world  by  the  efficiency  of  our  national  power.1 

Every  article  of  utility  that  is  produced  is 
influenced  by  the  five  sciences  previously  men- 
tioned. For  instance,  to  produce  successfully,  you 
must  first  of  all  have  education;  secondly,  you 
must  have  the  technologist,  or  analytical  chemist, 
to  assist  you  in  obtaining  the  best  possible  mate- 
rials; thirdly,  you  must  have  the  latest  experience 

1  On  the  Relation  of  Imports  to  Exports  (J.  Taylor  Peddie),  p.  134. 


268  NATIONAL  SYSTEM  OF  ECONOMICS 

and  knowledge  in  methods  of  production,  and  also 
the  latest  and  most  modern  machinery  to  assist 
you;  fourthly,  you  require  the  services  of  the  trans- 
portation companies  in  carrying  or  shipping  your 
goods  to  those  who  desire  them;  and  fifthly,  you 
need  the  banker  or  capitalist  to  finance  your  total 
operations  with  the  greatest  possible  facility. 

It  is  essential,  therefore,  if  the  nation  is  to 
advance  on  anything  like  progressive  lines,  that 
the  phases  of  activity  mentioned  should  be  made 
as  efficient  as  it  is  possible  to  make  them.  If 
individuals  adopt  and  support  this  policy  as  the 
basis  of  our  national  business  system,  they  must 
necessarily  become  national  economists.1 

"  The  absurdity  of  divorcing  wealth  from  its 
indispensable  union  with  human  interests,  and 
from  its  dependence  upon  considerations  and 
motives  higher  than  wealth,  is,  in  no  aspect,  more 
striking  than  in  the  attempt  to  separate  it  from 
national  policy  and  politics.  Whether  this  serious 
mistake  arose  from  the  exigencies  of  logic,  or  from 
neglecting  the  distinction  between  science  and  art, 
it  was  equally  fatal  to  clear  perceptions.  The 
assumption  that  the  whole  range  of  interests  and 
subjects  usually  embraced  in  Political  Economy — 
that  is,  all  that  relates  to  industry,  to  trade  and 
social  amelioration,  should  be  withdrawn  from  the 
domain  of  politics,  and  from  the  discretion  of 
statesmen  and  legislators,  and  be  committed  to 
1  On  the  Relation  of  Imports  to  Exports  (J.  Taylor  Peddle),  p.  135. 


ECONOMIC   SYSTEMS  269 

Political  Economists,  was  so  bold,  if  not  so  pre- 
sumptuous, that  it  could  never  have  been  made, 
except  by  men  labouring  under  some  great  delu- 
sion. And  when  we  reflect  upon  the  extremely 
unsettled  state  of  the  science,  by  the  light  of  which 
Political  Economists  in  their  closets  were  to  decide 
upon  the  well-being  of  millions  upon  millions  of 
people,  and  upon  the  fate  of  nations,  we  cannot 
but  wonder  that  such  an  idea  was  ever  entertained 
for  a  moment  by  men  of  intelligence.  Yet  this 
doctrine  has  had  its  day,  and  even  now  prevails  to 
some  extent.  There  is  a  certain  order  of  mind 
which,  abhorring  details,  and  feeling  unable  to 
grapple  with  them,  gladly  takes  refuge  in  rules  and 
generalities;  and  to  this  must  belong  those  who 
imagine  that  the  science  of  Political  Economy  is 
entitled  to  take  precedence  of  political  wisdom 
and  experience. 

"  Nations  are  associations  designed  to  obtain 
and  realise  all  the  advantages  which  united  power 
and  wisdom  can  secure  for  a  people.  However 
this  object  may  be  modified  or  limited  by  forms 
of  government,  or  ancient  customs  and  legislation, 
the  same  great  motive  remains.  The  legislation 
of  civilised  countries,  the  skill,  knowledge  and 
experience  of  statesmen  are,  or  should  be,  chiefly 
directed  to  this  point.  No  government  is  so 
restricted  in  its  powers  as  to  be  a  mere  negation 
in  regard  to  the  social  interests  of  the  country, 
and  none  should  be  so  blind  as  not  to  see  that  it 
must  be  vain  to  attempt  securing  any  higher  inter- 
ests of  a  people  while  their  material  or  industrial 


270  NATIONAL  SYSTEM  OF  ECONOMICS 

interests  are  neglected  or  suffered  to  languish. 
The  extent  to  which  governments  have  gone,  and 
must  necessarily  go,  in  protecting  and  promoting 
industry,  clearly  contradicts  the  idea  that  men  can 
be  let  alone  to  manage  their  private  business 
entirely  in  their  own  way.  Such  is  the  legislation 
in  regard  to  corporations,  partnerships,  banks, 
brokers,  railways,  canals,  roads,  mechanics'  liens, 
apprenticeships,  inspections,  patent-rights,  copy- 
rights, hours  of  labour,  licences,  auctions,  convey- 
ances of  real  estate,  coinage,  weights  and  measures, 
promissory  notes,  and  insolvency;  all  such  enact- 
ments, of  which  there  is  a  vast  mass,  are  designed 
to  regulate  the  course  of  business,  and  control  men 
in  their  private  affairs.  The  extent  to  which  this 
intervention  may  be  advantageously  carried  is  not, 
and  cannot  be,  determined  in  advance,  but  must 
be  left  with  the  institutions  of  a  country,  to  the 
sound  discretion  of  those  in  whom  its  power  is 
vested. 

"  Every  nation  must  have  a  system,  mainly  its 
own.  It  is  literally  impossible  that  a  population, 
occupying  an  extensive  territory,  can  be  dependent 
upon  other  countries  for  any  considerable  portion 
of  its  consumption  without  great  sacrifice.  How- 
ever one  country  may  be  disposed  to  look  to  others 
for  its  supplies,  it  can  only  obtain  them  to  the 
extent  that  other  countries  need  its  products.  Its 
consumption  will  then  be,  not  in  proportion  to  the 
power  of  domestic  production  and  the  people's 
wants,  but  to  the  desire  of  other  countries  to 
have  their  commodities.  In  point  of  fact,  it  is 


ECONOMIC   SYSTEMS  271 

found  that  every  nation  mainly  supplies  its  own 


wants."  l 


Although  these  words  were  written  by  Mr. 
Stephen  Colwell  in  the  Preliminary  Essay  to  the 
American  translation  of  Frederick  List's  great 
work  in  1856,  they  have  lost  none  of  their  force 
or  argument  even  to-day.  And  if  we  take  a 
retrospective  view  of  the  World's  history,  or  even 
of  our  own,  since  that  date,  the  principles  which 
he  so  ably  enunciates  can  only  be  characterised,  in 
the  words  of  J.  B.  Say,  as  "  known  demonstrated 
truths." 

It  cannot  be  said,  of  course,  that  the  United 
Kingdom,  or  the  great  Empire  for  which  it  is 
responsible,  has  been  able  to  demonstrate  the  truth 
of  the  proposition  which  Stephen  Colwell  so  ably 
outlines  in  an  economic  sense,  but  the  fall  of  the 
late  Coalition  Government  was  brought  about 
because  "  it  was  a  mere  negation,  and  allowed  the 
material  interests  of  the  country  to  languish."  It 
suffered  from  a  want  of  that  vitality  which  Stephen 
Colwell  and  Frederick  List  so  ably  demonstrate 
should  be  the  chief  characteristic  of  any  form  of 
National  Government.  If  we,  as  a  people,  have 
a  due  sense  of  proportion  and  can  be  credited 
with  any  intelligence  at  all,  we  cannot  but  recog- 

1  Preliminary  Essay  by  Stephen  Colwell  in  the  translation 
of  List's  National  System  of  Political  Economy,  pp.  Ixviii,  liix. 


272  NATIONAL  SYSTEM  OF  ECONOMICS 

nise  that  the  extraordinary  offensive  and  defensive 
powers  exhibited  by  Germany  during  the  course 
of  the  present  war  are  mainly  attributable  to  the 
successive  Governments  which  Germany  has  had, 
since  the  days  of  Frederick  List,  recognising 
and  treating  the  principles  underlying  national 
economy  as  a  branch  of  the  science  of  Govern- 
ment, and  applying  them  faithfully  and  religiously 
as  opportunity  or  occasion  served.  As  a  race,  the 
British  people  understand  the  science  of  politics 
better  than  any  other  people,  but  they  have  failed 
to  perceive  that  political  science  and  economic 
science  are  indispensable  and  inseparable;  that  in 
reality  they  constitute,  and  are  symbolic  of, 
national  power;  or  that,  at  any  rate,  they  are  two 
phases  of  it;  and  that  therefore  they  should  be  the 
instruments  which  we  ought  to  entrust  to  our 
representatives  in  Parliament,  and  through  them 
the  Government,  to  exercise  with  such  wisdom  and 
discretion  as  they  may  possess  in  advancing  the 
higher  interests  and  civilisation  of  the  race.  For 
the  future  we  must  be  prepared  to  do  this,  if  for 
no  other  reason  than  that  we  must  meet  like  with 
like.  Our  national  economics  must  be  of  a  kind 
as  will  effectively  counter  those  employed  by 
Germany. 

In  a  speech  which  he  made  at  the  Guildhall  on 
November  9,  1914,  Mr.  Asquith  most  admirably 
reaffirmed  our  determination  to  continue  the  war 


ECONOMIC   SYSTEMS  273 

until  the  aims  with  which  we  entered  it  are  won, 
and  the  following  quotation  taken  from  the  speech 
defines  our  position — 

"We  shall  never  sheathe  the  sword  which  we 
have  not  lightly  drawn  until  Belgium  recovers  in 
full  measure  all  and  more  than  all  she  has  sacrificed, 
until  France  is  adequately  secured  against  the 
menace  of  aggression,  until  the  rights  of  the 
smaller  nationalities  of  Europe  are  placed  upon 
an  unassailable  foundation,  and  until  the  military 
domination  of  Prussia  is  wholly  and  finally 
destroyed." 

In  a  further  speech  on  April  10,  1916,  Mr. 
Asquith  stated,  inter  alia,  that — 

"  Great  Britain  and  her  Allies  did  not  enter  into 
the  war  to  strangle  Germany,  nor  to  wipe  her  off 
the  map  of  Europe,  nor  to  destroy  or  mutilate  her 
national  life,  but  to  prevent  Germany  from  estab- 
lishing a  position  of  military  menace  and  dominance 
over  her  neighbours." 

He  summed  up  our  general  position  in  the  fol- 
lowing sentence — 

"As  a  result  of  the  war  we  intend  to  establish 
the  principle  that  international  problems  must  be 
handled  by  free  negotiation  on  equal  terms  between 
free  peoples,  and  that  this  settlement  shall  no 


274  NATIONAL  SYSTEM  OF  ECONOMICS 

longer  be  hampered  and  swayed  by  the  overmaster- 
ing dictation  of  a  Government  controlled  by  a 
military  caste.  That  is  what  I  mean  by  the  de- 
struction of  the  military  domination  of  Prussia; 
nothing  more,  but  nothing  less." 

In  the  foregoing  quotations  our  position  is  most 
admirably  defined  by  Mr.  Asquith  with  one  excep- 
tion— namely,  he  made  no  reference  to  the  eco- 
nomic position.  The  war  of  arms  declared  by 
Germany  in  August  1914  was  merely  the  cul- 
minating point  of  the  economic  war  she  had  suc- 
cessfully engaged  in  with  the  United  Kingdom  and 
other  European  nationalities  since  1870.  The 
economic  war  was  a  legitimate  operation,  and  of 
course  no  nation  could  take  exception  to  it,  for 
Germany  merely  took  advantage  of  the  conditions 
as  they  existed — which  any  business  man  would 
do  in  like  circumstances  if  his  competitors  were 
foolish  enough  to  concede  him  the  advantage;  but 
Germany,  being  intoxicated  with  success,  lost  her 
head  and  resorted  to  force  of  arms  to  secure,  as  she 
persuaded  herself  to  believe,  for  all  time  the  pre- 
dominant economic  position  which  she  had  quietly 
but  successfully  achieved  in  the  years  preceding, 
and  up  to,  1914. 

Why  she  should  have  gambled  in  this  way  with 
so  rich  an  inheritance  will  never  be  satisfactorily 
explained,  unless  it  be  that  the  Kaiser  desired  to 
secure  for  himself  the  historical  credit  of  having 


ECONOMIC  SYSTEMS  275 

founded  and  created  the  larger  German  Empire 
which  some  of  the  fanciful  and  premature  German 
maps  have  indicated  to  us.  But  certain  it  is  that 
had  he  contented  himself  with  the  work  his 
Governments  had  achieved,  and  had  allowed  Ger- 
many to  wait  another  twenty-five  years,  the  world 
would  have  been  at  his  feet,  or  at  his  successors'. 
In  other  words,  the  Kaiser  could  have  secured  for 
Germany  by  peaceful  economic  penetration  all  that 
he  endeavoured  to  prematurely  secure  by  force  of 
arms;  his  cardinal  error  was,  therefore,  in  not 
allowing  the  economic  decay,  or  undermining  pro- 
cess, to  continue  long  enough  in  the  countries 
whose  possessions  and  wealth  he  desired  to  acquire. 

But  what  was  the  economic  system  which 
enabled  Germany  to  reach  the  dominating  eco- 
nomic position  she  had  reached  in  1914?  It  was 
no  other  than  Frederick  List's  National  System 
of  Political  Economy. 

Frederick  List  was  the  great  teacher  who  led 
Germany  on  the  road  to  success,  and  had  she  con- 
tinued to  follow  his  economic  teaching,  instead 
of  following  the  philosophy  of  Treitchke  and 
Nietzsche  and  Bernhardi's  militarism,  she  could 
have  made  her  position  dominant  and  secure  in  the 
world  in  view  of  the  ignorance  of  other  European 
nationalities  in  economic  science  generally. 

Observe  the  prophetic  wisdom  contained  in  the 
following  eloquent  passage  in  List's  great  work, 


276  NATIONAL  SYSTEM  OF  ECONOMICS 

and,  in  the  light  of  his  teaching,  imagine  what  the 
German  people  will  think  of  their  present  rulers 
when  they  come  to  reconsider  their  present  experi- 
ence in  perspective. 

"  History  teaches  us  that  in  a  state  of  war  human 
welfare  is  at  its  lowest  degree,  and  that  it  rises  in 
proportion  as  the  associations  of  society  increase. 
In  a  primitive  state  of  the  human  race,  we  find 
only  families;  afterwards  come  cities,  then  con- 
federations of  cities,  then  the  union  of  a  whole 
country,  and,  finally,  the  association  of  many 
States  under  one  constitution.  If  the  nature  of 
things  has  been  strong  enough  to  extend  to 
hundreds  of  millions  the  associations  which  com- 
menced with  families  only,  we  may  imagine  that  its 
energy  might  suffice  to  effect  the  union  of  all 
nations.  If  the  human  mind  has  been  able  to 
appreciate  the  benefits  of  society  upon  such  a  large 
scale,  we  may  regard  it  as  capable  of  comprehend- 
ing the  advantage  of  an  association  embracing  the 
whole  of  humanity.  A  multitude  of  symptoms 
reveal  this  tendency.  It  may  suffice  to  recall  the 
progress  made  in  science,  art,  industry,  and  social 
organisation.  We  can  now  predict,  with  certainty, 
that  in  some  ten  years,  owing  to  improved  means 
of  communication,  civilised  nations  will  be  as 
closely  united  in  their  relations,  both  material  and 
moral,  and  even  more  so,  than  the  different 
counties  of  England  were  a  century  since.  The 
Governments  or  Continental  nations  already  pos- 
sess, in  the  telegraph,  the  means  of  conferring 


ECONOMIC  SYSTEMS  277 

together  almost  as  readily  as  if  they  were  upon  the 
same  spot.  Powerful  forces  hitherto  unknown 
have  already  elevated  industry  to  a  development 
beyond  all  expectations,  and  others  still  more 
powerful  are  giving  tokens  of  their  appearance. . 
But  as  industry  advances,  and  becomes  diffused 
throughout  different  countries,  war  is  rendered 
very  improbable,  if  not  impossible.  Two  nations,* 
equally  advanced  in  industry,  can  mutually  inflict 
greater  injuries  in  one  week  than  they  can  repair 
in  the  space  of  a  generation.  Consider,  also,  that 
these  new  powers,  hitherto  specially  devoted  to 
production,  will  not  refuse  their  energies  to  the 
work  of  destruction,  and  that  they  may  be  used 
for  the  purpose  of  defence  generally;  but  especially 
are  they  at  the  service  of  the  Continental  nations 
of  Europe,  even  to  the  threatened  result  of  depriv- 
ing Great  Britain  of  the  defensive  advantages 
arising  from  her  insular  position.  In  the  Congress 
of  its  great  powers,  Europe  possesses  already  the 
embryo  of  a  future  Congress  of  Nations.  Hence- 
forward, the  tendency  to  adjust  public  differences 
by  means  of  protocols  must  prevail  over  that  of 
extorting  justice  by  force  of  arms.  More  correct 
ideas  on  the  subject  of  wealth  and  industry  are 
now  prevalent,  and  the  best  minds  throughout  the  \ 
world  are  convinced  that  the  civilisation  of  bar-  \ 
barous  and  half-barbarous  people,  the  restoring 
nations  which  have  retrograded,  and  the  founda- 
tion of  colonies,  offers  to  the  more  advanced 
nations  a  field  for  the  development  of  their  pro- 
ductive power,  far  more  promising  and  satisfactory 
than  war  or  hostile  commercial  regulations.  In 


278  NATIONAL  SYSTEM  OF  ECONOMICS 

proportion  as  this  conviction  becomes  established, 
and  as  the  means  of  communication  shall  open 
between  civilised  and  uncivilised  nations,  the 
former  will  more  fully  comprehend  that  the 
civilisation  of  barbarous  people  and  nations  rent 
by  long-continued  anarchy  or  oppressed  by 
bad  governments,  is  a  mission  worthy  of  great 
national  efforts,  a  mission  which  belongs  to  all, 
and  which  can  only  be  accomplished  by  associated 
efforts. 

"  It  seems  to  be  an  unalterable  law  of  our  nature, 
an  instinct  of  humanity  which  prompts  or  stimu- 
lates civilised  nations,  to  extend  their  power  over 
people  of  less  culture  :  hence  we  may  infer  that  the 
civilisation  of  all  nations  and  the  culture  of  all  the 
world  and  its  inhabitants  is  the  true  mission  of 
national  power  and  intelligence.  On  all  sides  we 
observe  population,  intellectual  power,  and  mate- 
rial capital,  increasing  under  the  influence  of  civilis- 
ation to  the  point  of  being  forced  forward  upon 
other  less  civilised  countries.  When  the  soil  can 
no  longer  feed  its  population  nor  give  employment 
to  those  who  dwell  upon  its  surface,  the  unem- 
ployed must  go  to  distant  countries,  seeking  more 
fruitful  fields;  when  talents  and  industrial  capacity 
no  longer  obtain  a  sufficient  compensation  by 
reason  of  an  over-supply,  they  emigrate,  seeking 
homes  where  their  services  may  be  in  demand; 
when,  from  the  accumulation  of  material  capital, 
the  rate  of  interest  falls  so  low  that  small 
capitalists  can  no  longer  live,  they  too  must 
emigrate  to  poorer  countries  for  more  profitable 
investments. 


ECONOMIC   SYSTEMS  279 

"  The  system  of  Say,  or  his  school,  rests,  there- 
fore, upon  a  true  idea — an  idea  that  science,  if 
faithful  to  its  vocation  of  aiding  the  practical,  must 
admit  and  elaborate;  an  idea  that  practice  cannot 
disregard  without  going  astray.  This  school  has, 
however,  neglected  to  take  into  account  separate 
nationalities,  their  interests,  their  particular  con- 
dition, and  to  reconcile  them  to  the  idea  of 
universal  union  and  perpetual  peace. 

"  The  school  has  admitted  as  realised  a  state  of 
things  to  come.  It  presupposes  the  existence  of 
universal  association  and  perpetual  peace,  and  from 
it  infers  the  great  benefits  of  free  trade.  It  con- 
fronts thus  the  effect  and  the  cause.  A  perpetual 
peace  exists  among  provinces  and  states  already 
associated;  it  is  from  that  association  that  their 
commercial  union  is  derived :  they  owe  to  per- 
petual peace  in  the  place  they  occupy,  the  benefits 
which  it  has  procured  them.  History  proves  that/ 
political  union  always  precedes  commercial  union. 
It  does  not  furnish  an  instance  where  the  latter  has' 
had  the  precedence.  In  the  actual  state  of  the 
world,  free  trade  would  bring  forth,  instead  of  a 
community  of  nations,  the  universal  subjection  of 
nations  to  the  supremacy  of  the  greater  powers  in 
manufactures,  commerce,  and  navigation.  The 
reasons  for  this  opinion  are  not  only  strong,  but 
in  our  view  beyond  all  dispute."  * 

We  have  put  the  last  few  lines  in  italics,  for  we 
believe  that  this  fundamental  doctrine  has,  if  we 

1  pp.  198,  199,  200. 


28o  NATIONAL  SYSTEM  OF  ECONOMICS 

may  judge  of  the  cause  and  origin  of  the  present 
great  war,  proved  to  be  a  known  demonstrated 
truth.  Paradoxical  though  it  may  seem,  yet  it  is 
nevertheless  true  that  the  great  Power  to  which 
List  was  directing  his  attack  was  Great  Britain. 
List  could  hardly  have  dared  to  hope,  however, 
that  the  effect  of  his  teaching  would  ultimately 
reverse  the  relative  positions  of  Great  Britain  and 
Germany,  in  so  far  as  productive  power  was  con- 
cerned, in  so  short  a  period.  But  such  has  proven 
to  be  the  case. 

Germany,  in  our  view,  and  contrary  to  what  was 
anticipated,  has  provided  the  historical  example 
outlined  by  List  to  a  much  greater  degree  than 
Great  Britain;  and  few  can  deny  this  fact.  If  this 
be  generally  admitted,  are  we  not  then  faced  with 
the  reality  that  the  most  effective  means  of  defence 
and  offence  which  a  nation  can  possess  is  the 
national  system  ? 

It  has  been  clearly  demonstrated  that  Germany 
declared  this  war  to  subjugate  the  smaller  Euro- 
pean nationalities  to  her  will-power,  and  this 
objective  was  only  made  possible,  at  the  time  it 
was  contemplated,  by  reason  of  the  greater  pro- 
ductive power  which  she  possessed  in  chemistry, 
production  and  transportation.  List  was  of  the 
opinion,  however,  that  political  union  always  pre- 
ceded commercial  union.  We  do  not  believe  this 
to  be  strictly  accurate;  we  are  rather  of  the  opinion 


ECONOMIC   SYSTEMS  281 

that  economic  penetration,  or  the  dependency  of 
one  nation  upon  other  nations  for  its  essential 
utilities  and  commodities,  will  be  found  to  be  a 
necessary  preliminary  to  political  and  commercial 
union  in  an  aggressive  campaign;  in  other  words, 
to  subjugation. 

This  being  so,  are  we  not  confronted  with  the 
further  reality  that  the  theories  underlying  the 
doctrine  of  Laissez  faire,  Laissez  passer,  fail,  both 
in  the  abstract  and  the  concrete,  in  so  far  as  it  may 
concern  the  science  of  government.  If  the  world 
is  ever  to  be  reconciled  to  the  general  idea  of  uni- 
versal union  and  perpetual  peace,  it  will  only  be 
realised,  as  List  has  accurately  foreshadowed,  by 
clearly  recognising  that  each  nationality  is  entitled 
to  the  existence  and  system  of  government  which 
it  may  deem  to  be  the  most  advantageous  for  the 
advancement  of  the  welfare  of  its  people. 

A  nation  cannot  presume  to  undertake  to  make 
itself  responsible  for  the  welfare  or  social  progress 
of  other  civilised  nations,  nor  dictate  its  will  to 
them,  without  the  full  consent  of  the  people  whose 
nationality  is  concerned.  This  is  an  elementary 
proposition,  but  men,  in  their  preoccupations,  so 
often  overlook  it. 

If  a  nation  desires  to  advance  civilisation  in 
accordance  with  its  own  particular  characteristics 
and  conception  of  life,  or  protect  itself  against 
aggression,  the  only  means  by  which  it  may  reason- 


282  NATIONAL  SYSTEM  OF  ECONOMICS 

ably  fulfil  these  duties  is  to  employ  and  make 
effective  the  national  system.  A  nation  can  only 
advance  its  influence  and  civilisation  in  the  comity 
of  nations  by  precept  and  example  alone;  it  cer- 
tainly cannot  impress  it  upon  unwilling  national- 
ities by  force  of  arms  with  any  hope  of  permanent 
success. 

"A  nation  in  a  state  of  servitude,"  says 
Montesquieu,  "  labours  rather  to  preserve  than  to 
acquire.  A  free  nation  labours  rather  to  acquire 
than  to  preserve."  To  which  just  remark  List 
has  added  (page  88):  "And  whilst  people  think 
only  of  preserving,  and  never  acquiring,  they  are 
overtaken  by  ruin;  for  a  nation  which  does  not 
advance,  retrogrades,  and  must  finally  perish." 
"  For  if  restraints  upon  international  trade  are  but 
in  a  very  few  cases  compatible  with  individual 
liberty,  the  highest  degree  of  individual  liberty  is 
not  incompatible  in  foreign  trade  with  heavy 
restrictions.  It  may  even  happen  that  foreign 
commerce  wholly  free  may  lead  to  national  servi- 
tude, as  we  intend  to  show  in  the  instance  of 
Poland." 

It  is  in  this  sense  that  Montesquieu  says :  "It 
is  in  free  countries  that  men  of  trade  encounter 
innumerable  obstacles;  they  are  never  less  ham- 
pered by  laws  than  in  countries  not  free."  * 

Notwithstanding  the  criticisms  we  have  made 
1  Spirit  ofLawty  Book  XX,  chap.  xii. 


ECONOMIC   SYSTEMS  283 

on  the  Laissez  faire,  Laissez  passer  school  of 
thought,  we  are  prepared  to  concede  that  in  the 
middle  of  last  century,  when  Great  Britain  adopted 
the  principle  of  absolute  free  trade,  the  industries 
of  the  country  derived  a  great  impetus,  but  as  we 
have  pointed  out  on  a  previous  occasion,  we 
believe  that  this  impetus  was  derived  more  from 
the  fact  that  import  duties  upon  natural  materials 
were  abolished,  and  that  the  abolition  of  import 
duties  upon  manufactured  utilities  had  little  or  no 
effect  upon  the  situation;  in  point  of  fact,  after  the 
end  of  the  tenth  year  it  had  no  effect  at  all. 

As  Frederick  List  has  so  wisely  and  satirically 
remarked — and  the  mental  attitude  indicated  was 
no  doubt  prevalent  in  his  time — 

"A  nation  which  by  productive  duties  and 
maritime  restrictions  has  built  up  a  manufacturing 
industry  and  a  merchant  marine  to  such  a  point  of 
strength  and  power  as  not  to  fear  the  competition 
of  any  other,  can  pursue  no  safer  policy  than  to 
thrust  aside  the  means  of  elevation,  and  to  preach 
to  other  nations  the  advantages  of  free  trade,  and 
to  utter  loud  expressions  of  repentance  for  having 
walked  hitherto  in  the  way  of  error,  and  for  having 
come  so  lately  to  the  knowledge  of  truth."  l 

But  while  we  may  concede  this  much,  that  the 
Laissez  faire  school  may  have  imagined  that  it  had 

1  National  System  of  Political  Economy,  p.  440. 


284  NATIONAL  SYSTEM  OF  ECONOMICS 

some  foundation  in  fact  upon  which  it  established 
its  absolute  free  trade  school,  we  have,  never- 
theless, now  arrived  at  that  stage  in  the  world's 
history  wherein  we  are  surrounded  by  nationalities 
having  equal  or,  in  the  case  of  Germany  and 
America,  superior  productive  power  to  our  own. 
The  position  has,  in  actual  fact,  become  somewhat 
reversed  to  that  which  the  school  contemplated; 
but  if  there  be  any  one  who  would  not  admit  this 
truism,  let  us  then  agree  that  we  are  surrounded 
by  nationalities  of  equal  producing  power. 

If  this  be  so,  then  it  surely  becomes  necessary 
for  the  Government  to  adopt,  by  wise  laws  and 
regulations,  measures  of  a  kind  that  will  ensure 
satisfactory  working  conditions  in  which  British 
industry  may  be  allowed  freedom  to  develop  their 
resources  to  the  utmost  possible  extent  in  favour 
of  the  home  market.  We  must  preserve  and,  if 
possible,  develop  still  further,  those  industries 
which  exist,  and  re-establish  in  this  country  those 
industries  which,  by  our  former  political  economy, 
we  have  lost  to  the  country.  As  List  very  ably 
remarks — 

"  Foreign  competition  should  not  have  more 
than  its  share  in  the  annual  increase  of  consump- 
tion. Duties  should  be  raised  when  foreign  com- 
modities supply  the  greatest  part  or  the  whole  of 
the  increased  annual  consumption." 

It  would  be  impossible  for  foreign  commerce 


ECONOMIC   SYSTEMS  285 

to  obtain  more  than  its  fair  share  of  the  annual 
increase  of  consumption  of  the  home  market  if  the 
community  could  be  brought  to  appreciate  and 
realise  the  significance  of  the  principles  underlying 
the  national  system,  and  the  ultimate  influence  it 
would  have  in  preserving  and  developing  its  future 
national  prosperity  and  well-being. 

In  the  adoption  of  the  national  system  the  com- 
munity would  not  be  so  much  concerned  with  the 
relation  of  imports  to  exports  as  between  the  home 
market  and  foreign  countries;  it  would  be  primarily 
and  mainly  concerned  with  the  productive  power 
of  each  national  division  of  labour,  or  sphere  of 
activity,  and  the  relative  exchangeable  values  of 
the  annual  production  which  each  sphere  or  division 
of  labour  creates. 

In  the  national  system,  if  it  should  happen  that 
a  division  of  labour  should  fail,  or  be  unable,  to 
produce  sufficient  utilities  or  commodities,  which- 
ever the  case  may  be,  to  meet  the  country's  require- 
ments, then  the  other  divisions  must  necessarily 
meet  the  deficiency  by  importing  what  is  required 
from  foreign  countries.  And  the  necessity  which 
would  force  the  other  divisions  to  resort  to  this 
procedure  must  temporarily  impair  the  national 
power  and  the  well-being  of  the  individuals 
employed  within  the  division  of  labour  which 
failed;  and  such  other  individuals  over  whom  its 
influence  may  directly  and  indirectly  extend. 


286  NATIONAL  SYSTEM  OF  ECONOMICS 

It  therefore  follows  that  all  necessary  precautions 
should  be  adopted  to  ensure  that  there  will  be  no 
repetition  of  the  deficiency  in  the  annual  national 
production,  and  consumption,  in  any  division  or 
sub-division  of  labour;  for,  in  our  view,  it  is  these 
deficiencies  which  create  unemployment  and 
poverty,  much  of  which  could  be  avoided  were  a 
more  intelligent  interest  taken  in  the  subject. 

After  being  satisfied  that  the  national  productive 
power  is  efficient  in  all  its  phases,  and  is  properly 
balanced  for  exchange  purposes,  we  may  then  con- 
cern ourselves  with  the  relation  of  our  imports  to 
exports  as  between  the  home  market  and  foreign 
countries.  In  the  circumstances  mentioned  it 
would  be  the  height  of  folly  to  allow  prevailing- 
conditions  to  continue  which  allows  foreign  in- 
dustry and  commerce  to  materially  influence  or 
prejudice  our  national  welfare,  employment  and 
prosperity. 

Before  leaving  this  subject  there  are  one  or  two 
criticisms  we  should  like  to  make  on  certain 
observations  made  by  List,  and  the  first  is 
contained  in  the  following  passage — 

uAn  universal  republic,  as  it  was  understood 
by  Henry  IV,  and  by  the  Abbe  de  St.  Pierre — that 
is,  an  association  in  which  all  nations  should 
mutually  acknowledge  the  same  legal  authority 
and  renounce  the  right  of  enforcing  justice,  as 


ECONOMIC   SYSTEMS  287 

between  themselves,  is  realisable  only  so  far  as  a 
certain  number  shall  have  reached  the  same,  or 
nearly  the  same,  degree  of  industry,  civilisation, 
political  education,  and  power.  Free  trade  can 
be  extended  only  by  the  gradual  progress  of  such 
an  union;  it  is  only  by  it  that  nations  can  obtain 
the  great  benefits  of  which  associated  states  and 
provinces  offer  us  in  our  time  such  an  example. 
The  protective  system  is  the  only  means  by  which 
nations  less  advanced  can  be  raised  to  the  level  of 
that  nation  which  enjoys  a  supremacy  in  manufac- 
turing industry — a  monopoly  not  conferred  by 
nature,  but  seized  by  being  first  on  the  ground; 
the  protective  system,  regarded  from  this  point  of 
view,  will  be  the  most  effective  promoter  of  uni- 
versal association  among  nations,  and  consequently, 
free  trade.  And  from  this  point  of  view,  political 
economy  is  a  science  which  regards  existing  inter- 
ests and  the  special  condition  of  nations,  shows 
how  each  one  may  arrive  at  that  degree  of  eco- 
nomical development  to  which  association  with 
nations  of  equal  culture  and  advantages,  free 
trade  included,  may  by  any  possibility  carry  a 
nation."  l 

In  our  view,  List  has  committed  a  very  grave 
error  in  the  above,  inasmuch  as  the  doctrine  of 
absolute  free  trade  can  never  be  established 
between  nations,  and  we  judge  from  present 
experience,  as  the  balance  of  trade  would  work 

1  National  System  of  Political  Economy,  pp.  200,  201. 


288  NATIONAL  SYSTEM  OF  ECONOMICS 

in  favour  of  the  nation  or  nations  which  possessed 
the  greatest  population.  The  science  of  produc- 
tion has  now  got  to  such  a  degree  of  perfection 
that  the  industries  of  the  nation  which  possesses 
the  greatest  home  market  can  produce  utilities  and 
commodities  upon  a  lower  basis  of  cost  by  reason 
of  the  fact  that  all  standing  charges  are  spread 
over  the  larger  production;  so  that  each  unit  of 
goods  produced  would  bear  a  smaller  fixed  charge. 
And  this  applies  to  the  national  Government  con- 
cerned as  well  as  to  the  manufacturing  establish- 
ments. All  surplus  products  would,  therefore, 
compete  with  advantage  in  foreign  markets. 

In  order,  then,  that  nations  possessing  the 
smaller  populations  and  possessing  the  most  bene- 
ficent social  measures  may  be  able  to  pay  the  cost 
of  their  respective  national  services  without  im- 
posing an  undue  burden  upon  their  native  indus- 
tries, it  must  of  necessity  impose  import  duties  of 
an  amount  pro  rata  to  the  amount  native  industry 
has  to  contribute  directly  and  indirectly  to  these 
services,  and  it  is  not  necessary  that  any  further 
amount  should  be  imposed  for  their  protection,  or 
free  natural  development.  This  is  the  funda- 
mental basis  of  national  economics  based  on 
freedom  of  trade. 

The  second  criticism  we  would  like  to  make  is 
in  the  theory  advanced  by  List  in  the  following 
passage — 


ECONOMIC    SYSTEMS  289 

"  When  manufacturing  industry  is  still  in  the 
first  stage  of  its  development,  protective  duties 
should  be  very  moderate;  they  should  be  raised  by 
degrees  in  proportion  as  intellectual  and  material 
capital,  skill  in  the  arts,  and  the  spirit  of  enterprise 
increase  in  the  country.  But  it  is  not  necessary 
that  all  branches  of  industry  be  equally  protected. 
The  most  important,  those  of  which  the  develop- 
ment requires  large  capital,  fixed  and  circulating, 
much  machinery,  consequently  great  knowledge, 
much  dexterity  and  experience,  and  a  vast  body 
of  labourers,  whose  products  are  to  be  classed 
among  the  chief  necessaries  of  life,  having  as  such, 
of  course,  considerable  importance,  not  only  in 
reference  to  their  total  value,  but  in  reference 
to  the  independence  of  the  country,  as  the 
manufacture  of  wool,  cotton,  and  flax,  such  only 
should  have  the  privilege  of  special  protection. 
When  these  are  suitably  appreciated  and  de- 
veloped, other  branches  of  less  importance  grow 
up  round  them,  even  with  less  protection.  Where 
wages  are  high  and  population  not  considerable, 
relatively  to  the  extent  of  territory,  as  in  the  case 
of  the  United  States,  the  interest  of  the  nation 
demands  less  protection  for  manufactures  not 
using  much  machinery  than  for  such  as  employ 
machinery  in  the  greatest  part  of  their  work,  pro- 
vided that  the  states  from  which  they  receive  their 
manufactured  articles  take  freely  in  return  their 
agricultural  products."  l 

Our  view  of  his  theory  is  this,  that  no  manu- 

Nafionat  System  of  Political  Economy,  pp.  266-7. 


29o  NATIONAL  SYSTEM  OF  ECONOMICS 

facturing  industry  in  its  first  stages  of  development 
should  require  heavier  duties  than  it  does  in  its  later 
development,  provided  its  home  market  is  suf- 
ficiently large.  But,  on  the  other  hand,  in  those 
countries  where  the  home  market  may  be  more 
limited  in  extent  it  would  surely  be  more  logical 
to  impose  a  heavier  duty  in  favour  of  the  industry 
in  its  first  stages  of  development,  or  subsidise  it, 
rather  than  in  its  later  stages,  for  reasons  which 
we  have  found  necessary  to  express  in  the  last  two 
preceding  pages. 

As  regards  the  latter  part  of  the  above  quota- 
tion, it  is  quite  clear  that  List  is  referring  to  those 
industries  which  are  mainly  concerned  with  the 
development  of  advanced  materials  and  finished 
materials,  but  as  we  have  already  dealt  with  this 
particular  subject  in  the  first  essay  of  the  book  we 
need  not  further  refer  to  it  here  beyond  drawing 
attention  to  the  reference  (see  page  8). 

All  that  we  need  say  by  way  of  parenthesis  is 
this,  that  all  the  industries  of  the  country  should 
be  classified  and  scheduled  under  the  headings  of 
Natural  Materials,  Advanced  Materials,  Finished 
Materials,  and  Manufactured  Utilities,  and  import 
duties  should  be  arranged  upon  these  as  necessity 
may  dictate,  with  the  exception,  as  we  have  con- 
sistently emphasised  throughout,  that  no  duties 
should  be  imposed  upon  natural  materials  of  any 


ECONOMIC   SYSTEMS  291 

sort  whatsoever  except,  perhaps,  in  the  case  of 
wheat,  which  occupies  an  exceptional  position  in 
that  the  growing  of  wheat  may  be  considered  to 
be  the  farmer's  key  industry. 


In  developing  the  three  works  we  have  just 
completed  we  have  endeavoured  throughout  to 
place  theory  more  in  accord  with  actual  practice, 
and  to  make  national  economics  based  upon 
freedom  of  trade  more  clearly  understood  and 
appreciated  as  a  definite  science  than  it  has  hitherto 
been ;  and  it  would,  perhaps,  be  helpful  if  we  gave, 
by  way  of  conclusion,  some  indication  of  the 
primary  objects  we  should  seek  to  establish  through 
the  medium  of  the  Government  in  order  to  ensure 
that  the  foundation  of  our  future  national  and 
imperial  policy  may  have  a  solid  and  permanent 
basis.  In  so  far  as  our  immediate  interests  are 
concerned,  therefore,  we  believe  that  the  primary 
objects  to  be  established  should  be  as  follows — 

(i)  To    secure   the   adoption   of   a   system   of 
National  Economics  based  on  freedom  of  trade 
as  the  basis  of  our  future  national  business  policy, 
ua 


292  NATIONAL  SYSTEM  OF  ECONOMICS 

The  tariffs  provided  for  in  this  system  are  limited 
to  a  maximum  of  twenty  per  cent,  ad  valorem. 

(2)  To  secure  the  establishment  of  a  Ministry 
of    Industry    and    Commerce    with    a    properly 
qualified  staff  so  that  our  foreign,  imperial  and 
domestic    commerce   may   be    developed    on    the 
most  modern  and  scientific  lines. 

(3)  To  stimulate  and  encourage  standardisation 
in  methods  of  production,  organisation  and  dis- 
tribution.   To  promote  and  extend  the  application 
of  scientific  principles  to   industrial  and  general 
purposes. 

(4)  To  stimulate  and  encourage  the  standardisa- 
tion of  our  educational  system.     The  demand  of 
industry  and  commerce  for   the  expert  adminis- 
trator and  technologist  will  in  the  future  become 
more  exacting,  inasmuch  as  the  productive  power 
of  our  national  industries  will  depend  upon  the 
standard  of  knowledge  prevailing  in  general  manu- 
facture and  agriculture. 

(5)  To  secure  the  adoption  by  legislation  of  the 
principle  of  a  minimum  wage  of  twenty-five  shil- 
lings for  all  able-bodied  men  of  eighteen  years  of 
age  and  upwards,  and  in  return  for  this  concession 
an  arrangement  to  be  made  with  the  trade  unions 
for  the  abolition  of  the  principles  underlying  the 
restriction  of  output.     If  we  are  to  liquidate  our 
exchanges,  compete  with    Germany  and  America, 


ECONOMIC   SYSTEMS  293 

war  costs,  external  war  loans,  correct  our  foreign 
and  provide  the  minimum  wage  of  twenty-five 
shillings  for  all  male  adults  over  eighteen  years  of 
age  after  the  war,  it  is  essential  that  we  should 
secure  the  maximum  output  from  our  manu- 
facturing resources  and  agriculture. 

(6)  To    bring    about    the    establishment    of   a 
federal  form  of  government  for  Ireland  in  lieu  of 
the  system  provided  for  in  the  present  Home  Rule 
Bill,  in  order  to  establish  mutual  confidence  and 
friendly  relations  between  the  various  sections  of 
public  opinion  in  Ireland  and  in  Great  Britain. 

In  view  of  the  conditions,  political  and  eco- 
nomic, which  prevail  in  Ireland,  it  will  be  found 
chat  the  federal  form  of  government  is  the  one 

O 

most  likely  to  ensure  sound  economic  progress. 

The  people  of  Ireland  should  aim  at  introducing 
an  economic  system  for  the  whole  of  the  United 
Kingdom,  in  which  her  interests  are  adequately 
safeguarded.  The  strength  of  Ireland's  future 
economic  progress  can  only  be  a  reflection  of  the 
progress  made  in  Great  Britain. 

(7)  To     conserve    and    develop     the     natural 
resources  of  the  empire  on  behalf  of  national  and 
imperial  industries,  special  provision  being  made 
for  our  Allies,  as  specified. 

(8)  To    secure    the    establishment    of    a   trade 
bank,  or  banks,  which  shall  extend  financial  facili- 
ties, or  credits,  to  industry  and  agriculture  for 


294  NATIONAL  SYSTEM  'OF  ECONOMICS 

the  development  of  home,  imperial  and  foreign 
trade. 

(9)  To  establish  the  principle  of  small  owner- 
ships of  land  in  lieu  of  the  present  tenant  system, 
with  a  view  to  pursuing  a  more  active  and  aggres- 
sive policy  in  connection  with  the  development  of 
agriculture  in   the  United  Kingdom.     The  pro- 
ductivity of  the  land  at  present  under  cultivation 
should  be  increased,  and  means  should  be  devised 
to  put  under  cultivation  all  land  not  at  present 
being  utilised  for  that  purpose;  all  dead  values 
to  be  made  remunerative. 

(10)  To  secure  the  co-operation  of  the  trans- 
portation companies  towards  providing  such  facili- 
ties and  efficient  transportation  at  reasonable  rates 
as  may  be  required  for  the  proper  development  of 
industry  and  agriculture  in  the  United  Kingdom. 

In  the  pursuit  of  our  respective  professional 
and  private  interests  we  too  often  forget  that  there 
is  such  a  thing  as  public  welfare  and  nationality; 
and  if  we  may  judge  by  experience  it  is  only  in  a 
time  like  the  present  that  the  public,  speaking 
generally,  is  disposed  to  take  a  retrospective  view 
of  existence,  cause  and  effect;  but  this  general 
attitude  must  be  departed  from  if  the  enormous 
developments  which  must  take  place  in  our  eco- 
nomic life  in  the  future  are  to  be  achieved.  Our 
lives  must  be  guided  more  from  the  national 


ECONOMIC  SYSTEMS  295 

standpoint  by  certain  fundamental  and  demon- 
strated truths  in  the  same  manner  as  we  would 
shape  our  own  individual  life. 

We  should  remember  at  every  stage  of  our 
development  that  there  is  something  nobler  and 
more  inspiring  than  the  pursuit  of  one-sided  and 
purely  selfish  professional  and  private  interests. 
Individuals,  and  all  associations  of  individuals, 
will  sooner  or  later  perish  ignominiously  unless 
they  have  regard  for  the  general  interests  of  man- 
kind and  public  welfare,  and  for  their  greatest  and 
dearest  possession,  nationality. 


INDEX 


Agriculture,  and  home  markets,  196 
importance  of  method  and  organisation 

in,  181,  183 

its  influence  on  Labour,  176  et  seq. 
number  of  persons  employed  in,  194 
production    on    an    average    loo-acre 

farm,  189 

tenure  and  size  of  holdings,  192 
the  key  industry  of,  201,  287 
Allies,  the,  a  suggested   preference  to, 

after  the  war,  55 
Conference      at     Paris,     resolutions, 

xvii-xxiv 
our  duty  to,  46 
tariff  schedules  of,  45 
America,  and  the  post-war  gold  reserve, 

Bismarck  on  prosperity  of,  166 

cost  of  living  in,  150 

criticism  in,  over  post-war  trade  plans, 

labour  attack  on  Marxian  theories,  146 

Protection  in,  from  American  labour 
view,  152 

protective  tariffs  of,  280 

theory  of  protection  in,  16 
American  protection  :  collective  freedom, 
163 

individual  freedom,  162 

Mr.  Frewen  on,  155 

Senator  Reed  on,  153 
American  Tariff  System,  21 
Asquith,  Mr. ,  speeches  by,  272,  273 
Austria,  a  proposed  war  sur-tax  on,  47 

Bacon,  Francis,  cited,  218 
Bank  of  England,  amount  of  gold  in,  61 
Beet-sugar  industry  in  Germany,  186 
Bernhardi  and  our  future  trade  policy, 

vii 

Bills  of  Exchange  and  future  gold  posi- 
tion in  London,  59  et  seq. 
Bismarck,  Prince,  on  Protection,  166 
British   agriculture,  question  of  a   pro- 
tective tariff,  199 
British  sea  power  and  the  flow  of  gold, 

62 
Bulgaria,   a  proposed    war  sur-tax  on, 

Biilow,  Prince  von,  Imperial  Germany, 
197,  198 

Capital,  constant  and  variable,  109 


296 


Capital,  Marx  on,  114,  126 

"watering"  of,  168 
Capital  and  Labour,  a  question  of  moral 

sentiment,  82 
post-war  problems  for,  80 
Clementel,    M.,  president  of  Economic 

Conference,  xvii 
Colwell,  Stephen,  235  (note),   24^   252 

(note),  257,  260,  268 
Commerce,  definition  of,  224 
Confidence  and  credit,  94 
Mr.  Horace  White  on,  95 
view  of  Mr.  Otto  H    Kuhn  on,  97 
Credit,  public  confidence  a  sine  qua  non 
for,  94 

Davy's  law  of  minimum  in   plant  pro- 
duction, 205 
Death  duties,  169 
Denmark,  small  holdings  in,  204 
De  Quincy,   Thomas,  on  the  Logic  oj 

Political  Economy,  253 
Dingley  Tariff  of  1897,  the,  23 
Dresdner     Bank,    the,     a     remarkable 
pamphlet,  213 

Economics  and  business :  a  necessary 
corollary,  ix 

Economic  system,  a  needed,  ix,  x 

Economic  systems,  comparkpn  of,  246 

Employees,  a  legalised  minimum  wage 
for,  135 

Enemy  alien  trade  after  the  war,  40 

Enemy  aliens,  standardisation  of  tariff 
schedules,  47 

England,  unemployment  in,  Gompers 
on,  149 

Epicurus  cited,  140 

Europe,  cost  of  living  in,  150 

Exports,  necessity  of,  for  war  indemni- 
ties, 40 

Falk,  Oswald  Toynbee,  essay  in  the 
Nineteenth  Century,  61 

on  effect  of  falling  prices,  74 
Faringdon,  Lord,  viii 
Fichte  as  egotist,  102 
France,  Protectionist  policy  of,  166 

trade  in,  after  Franco-Prubsian  War, 

41 

Franco-Prussian  War,  the,  41 
Frankland,  Professor  Percy,  189 


INDEX 


297 


Free  Trade  versus  Protection,  13 
Cplwell  on,  260,  268. 
List  on,  279 

meaning  and  derivation,  12 
two  great  evils  of,  161,  162 
Free  Trade  (absolute),  impossibility  of, 

between  nations,  284 
Freedom  of  trade,  first  principles  of,  155 

individual,  71 
Freedom    of    trade    and    Equality    of 

Rights,  14 
Frewen,     Moreton,     his    "  Theory    of 

American  Protection,"  21 
on  American  Protection,  152,  155 
on  distribution  of  wealth  through  high 

wages,  161 
on  Economics  of  J.  J.  Hill,  183 

Gattie,  A.  W.,  on  the  terminal  system, 

227,  229 
German  agricultural  produce,      ireased 

protective  tariffs,  197 
agriculture,     Count    von    Schwerm- 

Lowitz  on,  212 
policy  of  nationality,  217 
Germany,  a  proposed  war  sur-tax  on,  47 
after  the  Franco-Prussian  War,  41 
and  List's  National  System,  275 
development  of  agriculture  in,  188,  213 
her  economic  system,  274 
question  of  war  indemnity,  40 
successful  economic  war  of,  274 
the  beet-sugar  industry  of,  186 
urged  to  adopt  tariff  system,  166 
value  of  agricultural  produce,  214 
Gold,  necessity  of,  for  exchange,  59 
Gompers,  Samuel,  on  earnings  and  un- 
employment, 149 
on  surplus  values,  145 
Government,  the,  and  control   of  com- 
modities, 70 
duty  of   administration   prepared    to 

adopt  National  Economics,  266 
Great  Britain,  a  low  tariff  system  essen- 
tial for,  167 

her  policy  after  the  war,  47  et  seq. 
prosperity  under  free   trade   and  the 

reason,  281 
Great  Britain  and  the  Allies,  graduated 

preferential  tariffs,  55 
Great  War,  the,  extracts  from  speeches 

by  Mr.  Asquith,  272 
fundamentals  of  a  lasting  peace,  39 
present  and  future  penalties  of,  35 

Harriman,  E.  H.,  98 

Hegel  as  egotist,  102 

Hill,  James  J.,  Mr.  Frewen  on  Econo- 
mics of,  183 
on  transport,  223 

Holden,  Sir  Edward,  on  a  free  market 
for  gold,  61 

Horner,  Francis,  on  Smith's  system,  241, 
242 


Hunter,  Robert,  and  Mr.  Gompers,  145 

Imperial  Federation,  a  step  towards,  201 

necessity  of,  34 
Import  duties,  chart  of,  14 
Imports,  necessity  of,  14 
Individual  freedom,  161  et  seq.,  260 
Individuality  and  organisation,  248 
Industries,  fallacies  regarding  production 

of,  24 

International  trade  after  the  war,  38 
Ireland,  a  federal  form  of  governmen 

for,  289 

agricultural  population  of,  177 
agriculture  in,  and  home  market,  196 
inadequacy  of  transportation,  222 

Joint  Stock  Banks  and  gold  in  hand,  61 
Joint  Stock  Companies,  production  and, 
ii 

Kuhn,  Otto  H.,  on  confidence  and  credit 

97 
Labour,  a  suggested  minimum  wage  for, 

T35 

and  agriculture,  176  et  seq. 

and  high  wages,  70 

attitude  of,  towards  Paris  Economic 
Resolutions,  78 

co-operation    of,    in    production    and 
politics,  77  et  sea. 

duty  and  responsibility  of,  75 

restriction  of  output  of,  139,  143,  167 
Labour-power,  and  machinery,  124,  125 

as  a  commodity,  Marx  on,  104 

value  of,  Marx  on,  132 
Labour  problem,  a  minimum  wage  the 
only  solution,  135 

company  promoters,  167 

freedom,     individual    and    collective, 
161  et  seq.,  260 

question  of  surplus  values,  144 

solution  of,  132  et  seq. 

the  breakfast  hour,  141 

the  working  day,  138 

value  of  labour-power,  132 
La  Follette,  Senator,  22 
Ltoerals,  the,  and  cheap  labour,  127 
Lfet,   Frederick,  criticisms  of  his  theo- 
ries, •2%-$'-' 

death  of,  93  (note) 

misinterprets  Adam  Smith,  235 

National  System  of  Political  Econo- 
my, xi,  93  (note) 
v  on  free  trade,  276,  aSo,  "783    ^_ 

on  the  power  of  association,  249 

on  war,  276 

Preface     to     National     System     of 
Economy,  233 

the    apostle  of   Germany's  economic 

system,  275 
London,  question  of  post-war  free  gold 

market  in,  59 

London  City  and  Midland  Bank,  deposits 
of,  65 


298 


INDEX 


Machinery,  and  limitation  of  working 

hours,  129 

modern,  and  Marxian  theories  regard- 
ing, 112 

Manures,  artificial,  188,  191 
Marx,  Carl,  79 
a  strange  hypothesis,  101 
an  unsound  economist,  91 
and  labour :  points    worth  attention, 

132,  138 

as  egotist  and  revolutionist,  102 
as  idealist,  104 
death  of,  93  (note) 
his  theories  and  labour,  90 
on  "  Constant  and  Variant  Capital," 

114 

on  John  Stuart  Mill,  91,  92 
on  labour  power  as  a  commodity,  104 
on  surplus  values,  144 
on  the  working  day,  138 
on  value  of  labour-power,  132 
Matilde  on  political  economy,  257 

Preface  to  List's  National  System  of 

Economy,  233 

McKinley  Bill  of  1890,  the,  22,  23 
Mercantile  System,  Adam  Smith  and,  238 

List  on,  240 

Merchandise,  definition  of,  224 
Middleton,   T.    B.,   "Recent  Develop- 
ments of  German  Agriculture,"  189, 
200,  213 
Mill,  John  Stuart,  Carl  Marx  on,  91,  92 

cited,  253-256 

Money,  circulation  of,  Marx  on,  102 
Money,   Sir   Leo   Chiozza,    a    table   of 

statistics  by,  211 

Monopolies  a  danger  to  cheap  produc- 
tion, 10 

Montesquieu,  Spirit  of  Laws,  280,  281 
Morgan,  J.  P.,  98 

Napoleon  on  the  needs  of  Europe,  ix 
National   Economics,   and    freedom   of 

trade,  first  principles  of,  155 
and  Social  Science,  162 
based  on  freedom  of  trade  :  the  funda- 
mental basis,  285 

chart  based  on  freedom  of  trade,  2 
definition  of,  263 
importance  of,  ix,  xi 
Marx  and,  92 
primary  objects  of,  288 
versus  Political  Economy,  234  et  seq. 
Natural  materials,  8 
Naumann,  Frederick,  77 
Neutral  countries,  war  profits  of,  54 
Neutral    trade    after    the    war,    47,   52 

et  seq. 
New  York,  a  Money  Trust  Investigation 

in,  95 

Mr.  Kuhn's  address  on  confidence  and 
credit,  97 

Organisation  and  individuality,  248 


Paris  Economic  Resolutions,  the,  v,  vi 

conditions    required    to    make    them 
effective,  35  et  seq. 

considerations  arising  from,  3  et  seq. 

co-operation  of  organised  labour,  6 

definition  of  raw  materials,  8 

Labour  and,  78 

iquidation  of  war  costs,  6 

neutral  trade  aspect  of,  6 

question  of  indemnity,  5 

occupancy  of  throne  of  Germany,  6 

the  Mercantile  System,  30 

translation  of.  xvii-xxiv 
Payne,  Mr.,  statement  by,  23 
Peddie,  J.  Taylor,  122,  247,  267,  268 
Physical  and  Moral  Science,  J.  S.  Mill 

on,  254 
Political  Economy,  J.  S.  Mill's  definition 

_  ,of.  255 

Marx  on,  92 

Stephen  Colwell  on,  257 

terms  of  the  science,  251 

versus  National    Economics,    234   et 

seq. 
Population,  growth  of,  and  production, 

181 
Prices,    inflation  and  manipulation  of, 

and  the  cause,  59  et  seq. ,  66 
London  as  a  free  market  for  gold,  59 
Mr.  F.  A.  Vanderlip  on  post-war  gold 

position  in  America,  73 
Mr.  O.  T.  Falk  on  London  as  a  free 

market  for  gold,  61 
Production,  and  surplus  values,  144 
cheapness  of,  a  boon  to  humanity,  123 
method  and  organisation  in,  181 
monopolies  and,  10  et  seq. 
Profits,  effect  of  competition  on,  17 

necessity  of  manipulation  of,  66 
Protection,  Senator  Reed  on,  153 
theory  of  American,  16 
versus  Free  Trade,  13 

Railways,    a     goods    clearing     house 
system,  226,  231 

an  unexplained   rise  in  expenditure 
226 

and  transportation,  220  et  seq. 

nationalisation  of,  232 

rates  for  transportation,  225 
Raper,  Professor  C.  L.,  182  (note) 

Principl,  s  of  Wealth  and  Welfare,  220 
Raw  materials,  definition  of,  8 
Reed,    Senator    Thomas    B.,   father  of 
American  Protectionists,  152 

on  the  Mills  Tariff,  157 

speech  (May  1888),  153 

wages  question,  160 
Richelot,  Henry,  9 3  (note) 
Russia,  Protectionist  policy  of,  166 

Santayana,  Mr.,  his  Egotism  of  German 

Philosophy,  102 
on  the  average  German,  105 


INDEX 


299 


Say,  J.  B.,236 

on  Adam  Smith,  243 
Schwerin-Lowitz,  Count  von,  on  recent 
developments   of    German   agricul- 
ture, 212 

Selborne,  Lord,  189 
Seymour,  Lord,  241 
Small  holdings,  203 

Christopher  Tumor  on,  203 
Smith,  Adam,  xi,  6? 
and  the  Mercantile  System,  31 
his  national  economy  based  on  free- 
dom of  trade,  12,  27 
not  a  Free  Trader,  33,  236 
On  the  Theory  of  Moral  Sentiments, 

28,  85,  244 

Wealth  of  Nations,  196,  208,  238 
Social  Science  and  National  Economics, 

162 
Socialists,  and  the  Marxian  theories,  127 

and  the  surplus  values  question,  146 
State,  the,  and  agriculture,  178 
and  poverty,  178-9 
regulation  of  industry  and  commerce, 

266 

Sugar  industry,  the,  186 
Surplus  values,  the  question  of,   144  ft 

seq. 

Mr.  Samuel  Gompers  on,  145 
Sydenham,  Lord,  v 

Tamaqua,  coal  mines  of,  233  (note) 

Tariff   schedules,   necessity  of  co-ordi- 
nation of,  45 
recommended    by    London    Chamber 

of  Commerce,  9,  15 
suggested  maximum  duties,  15 

Tariffs,  and  restriction  of  trade,  127 
Bismarck  on,  166 

Tenant  farmers,  207 

Thompson,    Slason,    on    transportation 
rates,  225 

Tools,    comparative    price    list    of,    10, 
18-20 

Trade  banks,  Lord   Faringdon's  Com- 
mittee,  viii 

Trade  policy,  the  future,  vu 

Trade  Unions,  unsoundness  of  pre-war 
views,  78 


Transportation,  and  exchange,  225 

general  theory  of,  219  et  seq. 

the  terminal  system,  227 
Turkey,  a  proposed  war  sur-tax  on,  47 
Turner,  Christopher,  on  small  holdings, 
203 

United    Kingdom,   pre-war    imports  of 
sugar,  187 

United  States,  the,  a  comparative  price 

list  of  tools  in,  16 
anxiety  in,  on  Allies'  post-war  trade 

plans,  57 

comparative  cost  of  living  in,  Gompers 
on,  149 

United  States  Steel  Corporation,  earn- 
ings and  production,  120,  121 

Vanderlip,  F.  A.,  on  the  American  gold 
position  after  the  war,  73 

Wages,  American  and  English,  158 
and  Labour,  70 
in  England  as  compared  with  America, 

149 

War  indemnities,  considerations  regard- 
ing, 4° 

War  sur-tax,  a  proposed,  47 
Wealth,  distribution  of,  through  wages, 

167,  169 
distribution   of,  through  wages,    Mr. 

Frewen  on;  161 
various  definitions  of,  174 
Welsh    coal  miners,    a    recent   rise    in 

wages,  179 

Whateley,  Archbishop,  on  Logic,  251 
Wheat,  acreage  and  prices,  211 
import  duties  on,  200 
the  key  industry  of  agriculture,  201, 

287 

White,  Horace,  95 
William  II,  Emperor,  his  cardinal  error, 

Wilson5  Tariff  Bill,  debate,  22 
Senator  Reed  on,  158 

Young,  Arthur,  on  ownership,  204 


Printed  in  Great  Britain  for  the  UNIVERSITY  OF  LONDON  PRESS  LTD.,  by 
RICHARD  CLAY  &  SONS,  LTD.,  London  and  Bungay. 


BY  THE  SAME  AUTHOR 

ON  THE  RELATION  OF 
IMPORTS  TO  EXPORTS 

A  STUDY  OF   THE   BASIS   OF 
A   NEW   NATIONAL   AND   IMPERIAL   POLICY 

BY  J.  TAYLOR  PEDDIE,  F.S.S. 

SECOND  EDITION  (ENLARGED) 
180  pages.    Crown  8vo.    Price  3/6  net.    By  Post  3/10. 


FIRST  PRINCIPLES  OF 
PRODUCTION 

A  STUDY  OF  THE   FIRST   PRINCIPLES   OF 

PRODUCTION  AND  THE   RELATION 

OF   SCIENCE   TO   INDUSTRY 

BY  J.  TAYLOR  PEDDIE,  F.S.S. 

Together  with  Contributions  by  S.  ROY  ILLINGWORTH, 
A.R.C.Sc.,  A.I.C.,  B.Sc.(Lond);  SIR  NORMAN  LOCK- 
YER,  K.C.B.,  LL.D.,  F.R.S.  (with  Notes  by  Prof.  R.  A. 
GREGORY)  ;  WILLIAM  LORIMER,  LL.D.,  and  Prof.  PERCY 
FRANKLAND,  F.R.S. 

240  pages.    Crown  8vo.    Price  3/6  net.    By  Post  3/10. 


LONGMANS,    GREEN    AND    CO., 
39  PATERNOSTER   ROW,   LONDON. 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW 


AN  INITIAL  FINE  OF  25  CENTS 

WILL  BE  ASSESSED  FOR  FAILURE  TO  RETURN 
THIS  BOOK  ON  THE  DATE  DUE.  THE  PENALTY 
WILL  INCREASE  TO  SO  CENTS  ON  THE  FOURTH 
DAY  AND  TO  $1.OO  ON  THE  SEVENTH  DAY 
OVERDUE. 


MAY 


'|i,r/ 


JAN     25  1940 

•w  1^      .  -  ,  /    f  c» 

MAY  19  iQ43 

1      3jWarJ64R\y 

i  ^ 

KAY  1  6 


RECEIVED 

mi   on  1995 

JUL    /  U  WJO 

CIRCULATION  DEI 


LD  21-100m-8,'34 


Y.B  65803 

U.  C.  BERKELEY  LIBRARIES 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 


